Compass Point Cut Price Target as On Deck Capital (ONDK) Reports Weak 1Q

Compass Point maintained a Neutral rating on On Deck Capital (NYSE: ONDK), and cut the price target to $6.00 (from $7.50), following the company's 1Q earnings report. Adjusted EPS of ($0.13) missed consensus estimates of ($0.08). Gross revenue of $62.6M rose 11% YOY. Management now projects 2016 gross revenues of $278-$288M from $320- $328M previously (and vs. consensus of $315M).

Analyst Michael Tarkan commented, "We are reiterating our Neutral rating on ONDK but are lowering our price target to $6.00, from $7.50, after the company reported weaker-than-expected 1Q16 earnings and provided a revised 2016 outlook that came in well below our and consensus' expectations. We are also cutting our 2016 and 2017 adjusted EPS estimates to ($0.75) and ($0.35), respectively, from gains of $0.05 and $0.15. Simply put, while we had expected a slowdown in revenue growth in 2016 due to moderating gain on sale activity and increasing provision, funding, and technology expenses, the degree to which the pressure accelerated was surprising. Additionally, uncertainty surrounding funding, coupled with a more conservative approach on credit and a slowdown in marketing expenses, wound up significantly impacting origination growth. While this may be viewed as a kitchen-sink type quarter ahead of the upcoming analyst day, the company's near-term earnings power remains constrained and competitive, funding, and regulatory risks remain elevated. Our revised price target of $6.00 reflects 1.7x our 1Q17 tangible book value estimate of $3.47 (~1.5x including the DTA)."

For an analyst ratings summary and ratings history on On Deck Capital click here. For more ratings news on On Deck Capital click here.

Shares of On Deck Capital closed at $8.30 yesterday.

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