Lending Tree (TREE) PT, Estimates Trimmed at RBC on Mortgage Weakness

September 19, 2016 9:49 AM EDT
Get Alerts TREE Hot Sheet
Price: $106.25 +2.02%

Rating Summary:
    11 Buy, 0 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 18 | Down: 17 | New: 10
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RBC Capital analyst Mark Mahaney lowered estimates and his price target on Lending Tree (NASDAQ: TREE) to $145.00 (from $150.00) on mortgage weakness but maintains an Outperform rating.

Mahaney issued the following takeaways from an investor conference: "Management has consistently stated that lender appetite for LendingTree varies in part on the interest rate environment. During periods of elevated rates, industry originations shrink and lenders see less organic traffic. As a result, they turn to TREE (and others) for more loan volume. For LendingTree, increased competition for a smaller number of borrowers leads to both an increase in Revenue per Borrower and higher customer acquisition costs. In periods of low rates– or in the current environment, multi-year low rates– lenders are flooded with organic volume and reduce the number of leads they look to acquire from LendingTree and others. At a recent investor conference, management noted this is what has happened in the second and third quarters. However, they also said the reduction in rates is flowing through more on the cost side than the decrease in revenue and materially helping earnings. Said differently, on aggregate, lenders are pulling back marketing dollars more across other channels than on LendingTree itself, so while Revenue per Borrower has trended lower the cost to acquire those borrowers has decreased by a greater amount. While the revenue decline gives us pause, the margin improvement is incrementally positive and we think illustrates TREE’s competitive strengths and proves out the business model."

The firm is reducing 2016 revenue estimates 2% and lowering 2017 revenue estimates 5%. 2016 EBITDA remains unchanged, while 2017 EBITDA is also lowered 5%.

For an analyst ratings summary and ratings history on Lending Tree click here. For more ratings news on Lending Tree click here.

Shares of Lending Tree closed at $95.63 yesterday.

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