Analysts Say LendingTree ($TREE) is a BUY!

After Northland Securities upgraded LendingTree’s price target to $225 (approx. 9.5% upside), I decided to do a quick company analysis and outlook to see if I agree with their PT. Company Overview LendingTree (NASDAQ: TREE) is America’s largest online marketplace connecting lenders and borrowers. LendingTree empowers lenders to shop for financial services the same way one would shop for hotel stays or airline tickets- comparing multiple offers from a nationwide network of over 800 partners that offer their customers services such as mortgage loans, mortgage refinances, auto loans, personal loans, business loans, and much more. Their service also provides lenders with free credit scores, monitoring and improvements, and etc. Revenue Segments: Home Segment: Generating revenue from real estate brokerage services through match fees paid by the real estate brokers participating in their marketplace Accounts for 3% of total revenue in 2020 Consumer Segment: Generating revenue from credit repair and debt relief services through subscription fees from consumers that are enrolled in their credit repair product Accounts for 8% of total revenue in 2020 Insurance Segment: Generating revenue from match fees when connecting leading insurance companies to consumers Accounts for 7% of total revenue in 2020 Holdings Insight: Institutional Holdings: BlackRock Inc. raised its holding by 45.3% during the 4Q Nikko Asset Management Americas Inc. raised holdings by 15.4% during 4Q Insider Transactions: Independent Director G. Thompson purchase of 1.4M worth of share at about $282/share Suggests a positive outlook for the company as the price was bought above the price it was trading at then Industry Overview and Outlook Low-interest rates have fueled consumer demand for refinancing existing debt and access to new debt Industry consolidation is occurring due to shrinking margins and increased regulatory costs Economic Growth, Regulatory Relief and Consumer Protection Act to encourage consumer lending Strong economy coupled with strong employment numbers have led to a surge in home sales Pandemic-driven demand sent total of 2020 home sales to the highest since 2006 6% increase YoY for homes sold Sales in January 2020 were 22% stronger than in December 2019 51% of mortgage lenders are non-banks 5 of the largest mortgage lenders in the U.S are non-banks Projected $73.7B in loan origination for 2022 $35.6B from personal loans, $13.6B from small and medium entrepreneur loans, and $24.5B from refinancing student debt 79.3% growth since loan origination value of $41.4B from 2017 Fin-Tech lending has grown by approx. 30.1% YoY in the volume of loans Investment Thesis I: Established Leader in the Marketplace LendingTree’s competitive advantages in the marketplace differentiate them from other loan or insurance comparison-shopping marketplaces. Speed: easy-use; apply for loans in minutes and lock-in rates Convenience: search and apply for quotes 24/7 from anywhere in the world Competitive Rates: average buyer saves $125-$163 per month for interest LendingTree has saved refinanced borrowers the most in San Francisco, San Diego and Los Angeles with median savings of $80,211, $77,740 and $73,954 respectively Even in cities with the lowest refinancing savings like Detroit present median savings of $23,409 Investment Thesis II: Insurance Growth Insurance segment is the highest growth amongst other segments Refer to chart ‘Segment Revenue’ Insurance segment profit increased 16.5M during 2020 primarily due to increases in revenue and the number of consumers seeking insurance coverage Expected revenue growth of 30% + compared to 2Q2020 Acquisitions of QuoteWizard in 4Q2018 and ValuePenguin in 1Q2019 allowed them to enhance their insurance products QuoteWizard – one of the largest insurance comparison marketplaces in the growing online insurance advertising market This acquisition established LendingTree as a leading player in the online insurance advertising industry while also allowing them to diversify their financial services category Significant portion of their revenue growth in 2020, 2019 and 2018 was driven by their insurance leads business from this acquisition ValuePenguin – personal finance website that offers consumers objective analysis on variety of financial topics from insurance to credit cards This acquisition provided immense value to insurance carriers and agents through their high-quality content and SEO capability – allowing them further scale in the insurance space New Medicare category for insurance growth showed significant promise during their first open-enrollment period in the 4Q2020 Presents a significant opportunity for their insurance segment Major Risks Consumer Demand Risk – a general increase in interest rates may affect the ability of LendingTree’s mortgage Network Partners to close loans which will translate to lower revenues for LendingTree and ultimately affect their financial position Interest Rate Risk – The Federal Reserve is currently printing out more money in order to keep the markets afloat due to COVID-19. In the long-term, this will cause inflation and the decreasing value of the USD. To combat this, the Reserve may be forced to raise interest rates  Final Thoughts The positive industry outlook and the prospective insurance segment of LendingTree that has generated high growth YoY strengthens analysts’ recommendations to BUY. Given a stock price forecast projecting a median price target of $320 (60.7% upside) and a low-price target of $200 (0.5% upside), I believe this stock still has a low of room for growth as they continue to diversify its revenue streams and expanding their financial services. Furthermore, I’ve provided a chart of analyst recommendations retrieved from CNN Business that strengthens the recommendation to BUY.

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undervaluedplayer

May 21, 2021

-27.10%

Change % Since Posting

194.16

Price When Posted

-52.61

Change Since Posting

TREE

LendingTree Inc.

141.55

-10.85
-7.12%
Current Price

Analysts Say LendingTree ($TREE) is a BUY!

bullish

After Northland Securities upgraded LendingTree’s price target to $225 (approx. 9.5% upside), I decided to do a quick company analysis and outlook to see if I agree with their PT.

Company Overview

LendingTree (NASDAQ: TREE) is America’s largest online marketplace connecting lenders and borrowers. LendingTree empowers lenders to shop for financial services the same way one would shop for hotel stays or airline tickets- comparing multiple offers from a nationwide network of over 800 partners that offer their customers services such as mortgage loans, mortgage refinances, auto loans, personal loans, business loans, and much more. Their service also provides lenders with free credit scores, monitoring and improvements, and etc.

Revenue Segments:

  • Home Segment: Generating revenue from real estate brokerage services through match fees paid by the real estate brokers participating in their marketplace
    • Accounts for 3% of total revenue in 2020
  • Consumer Segment: Generating revenue from credit repair and debt relief services through subscription fees from consumers that are enrolled in their credit repair product
    • Accounts for 8% of total revenue in 2020
  • Insurance Segment: Generating revenue from match fees when connecting leading insurance companies to consumers
    • Accounts for 7% of total revenue in 2020

Holdings Insight:

  • Institutional Holdings:
    • BlackRock Inc. raised its holding by 45.3% during the 4Q
    • Nikko Asset Management Americas Inc. raised holdings by 15.4% during 4Q
  • Insider Transactions:
    • Independent Director G. Thompson purchase of 1.4M worth of share at about $282/share
      • Suggests a positive outlook for the company as the price was bought above the price it was trading at then

Industry Overview and Outlook

  • Low-interest rates have fueled consumer demand for refinancing existing debt and access to new debt
  • Industry consolidation is occurring due to shrinking margins and increased regulatory costs
    • Economic Growth, Regulatory Relief and Consumer Protection Act to encourage consumer lending
  • Strong economy coupled with strong employment numbers have led to a surge in home sales
    • Pandemic-driven demand sent total of 2020 home sales to the highest since 2006
    • 6% increase YoY for homes sold
    • Sales in January 2020 were 22% stronger than in December 2019
  • 51% of mortgage lenders are non-banks
    • 5 of the largest mortgage lenders in the U.S are non-banks
  • Projected $73.7B in loan origination for 2022
    • $35.6B from personal loans, $13.6B from small and medium entrepreneur loans, and $24.5B from refinancing student debt
    • 79.3% growth since loan origination value of $41.4B from 2017
  • Fin-Tech lending has grown by approx. 30.1% YoY in the volume of loans

Investment Thesis I: Established Leader in the Marketplace

LendingTree’s competitive advantages in the marketplace differentiate them from other loan or insurance comparison-shopping marketplaces.

  • Speed: easy-use; apply for loans in minutes and lock-in rates
  • Convenience: search and apply for quotes 24/7 from anywhere in the world
  • Competitive Rates: average buyer saves $125-$163 per month for interest
    • LendingTree has saved refinanced borrowers the most in San Francisco, San Diego and Los Angeles with median savings of $80,211, $77,740 and $73,954 respectively
    • Even in cities with the lowest refinancing savings like Detroit present median savings of $23,409

Investment Thesis II: Insurance Growth

  • Insurance segment is the highest growth amongst other segments
    • Refer to chart ‘Segment Revenue’
    • Insurance segment profit increased 16.5M during 2020 primarily due to increases in revenue and the number of consumers seeking insurance coverage
    • Expected revenue growth of 30% + compared to 2Q2020
  • Acquisitions of QuoteWizard in 4Q2018 and ValuePenguin in 1Q2019 allowed them to enhance their insurance products
    • QuoteWizard – one of the largest insurance comparison marketplaces in the growing online insurance advertising market
      • This acquisition established LendingTree as a leading player in the online insurance advertising industry while also allowing them to diversify their financial services category
      • Significant portion of their revenue growth in 2020, 2019 and 2018 was driven by their insurance leads business from this acquisition
    • ValuePenguin – personal finance website that offers consumers objective analysis on variety of financial topics from insurance to credit cards
      • This acquisition provided immense value to insurance carriers and agents through their high-quality content and SEO capability – allowing them further scale in the insurance space
    • New Medicare category for insurance growth showed significant promise during their first open-enrollment period in the 4Q2020
      • Presents a significant opportunity for their insurance segment

Major Risks

Consumer Demand Risk – a general increase in interest rates may affect the ability of LendingTree’s mortgage Network Partners to close loans which will translate to lower revenues for LendingTree and ultimately affect their financial position

Interest Rate Risk – The Federal Reserve is currently printing out more money in order to keep the markets afloat due to COVID-19. In the long-term, this will cause inflation and the decreasing value of the USD. To combat this, the Reserve may be forced to raise interest rates 

Final Thoughts

The positive industry outlook and the prospective insurance segment of LendingTree that has generated high growth YoY strengthens analysts’ recommendations to BUY. Given a stock price forecast projecting a median price target of $320 (60.7% upside) and a low-price target of $200 (0.5% upside), I believe this stock still has a low of room for growth as they continue to diversify its revenue streams and expanding their financial services. Furthermore, I’ve provided a chart of analyst recommendations retrieved from CNN Business that strengthens the recommendation to BUY.

 

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read-time
4 min

225.00

Target Price

8/ 10

Confidence

6-12 Months

Timeframe
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Earnings Release
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News
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SEC Filing
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