SunTrust Robinson Humphrey Starts LendingTree (TREE) at Buy

SunTrust Robinson Humphrey initiates coverage on LendingTree (NASDAQ: TREE) with a Buy rating and a price target of $150.00.

Analyst Robert Peck highlighted the following:

LendingTree is Targeting a Large Market Opportunity. The market for consumer loans is large – at more than $12 trillion – and dominated by mortgages which account for almost 70% of the consumer debt. Assuming a cost per funded loan of ~150 bps, we estimate the market for loan lead generation at ~$35B. With only 5% currently done online, this creates a long run way for online lending market places, like LendingTree.

LendingTree is a Leader with a Strong Brand. LendingTree is a leader in financial lead generation; its core mortgage business accounts for ~1.5% of all mortgage originations. It has invested ~$1.5B on building its brand equity during the past 17 years and its aided brand recognition is ~70%. LendingTree has a 13% online market share, and is a leader not only in mortgages, but also personal loans, auto loans, and reverse mortgages. Founder & CEO Doug Lebda, has a long history & strong knowledge of the sector.

Innovating to Diversify and Differentiate. LendingTree has been adding features and expanding beyond the core mortgage business. Within the mortgage segment, it has added features like the Rate Table, mobile forms, local loan officer, and a call center to enhance the user experience. Outside of mortgages, it has added new loan types to expand TAM and diversify revenue, including credit cards, personal loans, student loans, and small business loans.

Disciplined Operating Model Leads to Robust Financials. We expect revenue growth of ~47% in 2015, accelerating from ~20% in 2014. While Mortgage related revenue accounts for ~60% of revenues, Non-mortgage revenues are growing >150%. The company optimizes marketing to drive variable marketing margins ~40%, and Adj. EBITDA in the mid teens. It has ~$200M of cash, no debt, and an undrawn $125M revolver for financial flexibility.

Valuation is Attractive. The company currently trades at a discount to our comparison universe on both growth adjusted EV/Revenue and EV/EBITDA multiples, at 0.2x and 0.5x vs 0.3x and 0.6x. Our $150 2016 price target is derived from our Central Tendency of Value methodology which employs several valuation techniques and implies EV/Revenue and EV/EBITDA multiples of 4.8x and ~27x.

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 $124.97 yesterday.

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