Cost Control And Relaxed Regulations Will Revive Insurance And Home

Key Takeaways

• Regulatory relief in Insurance is expected to improve customer experience and support revenue and EBITDA growth.
  
• Cost management efforts could bolster net margins, despite investments, while demand for home equity loans boosts revenue.
  
• Regulatory headwinds in insurance and high mortgage rates suppress revenue, while tariffs and consent rules pose risks to demand and earnings.

Catalysts

Through its subsidiary, operates online consumer platform in the United States.

• The alleviation of regulatory headwinds in the Insurance segment, with a court ruling eliminating restrictive rules, is expected to lead to a recovery in customer experience and revenue growth, positively impacting revenue and EBITDA in future periods.
  
• In the Consumer segment, the investment in a concierge sales team for small business loans has improved conversion rates and increased revenue from renewals and lender bonuses, which is projected to significantly boost small business loan revenue and enhance overall earnings.
  
• The Home segment benefits from increased demand for home equity loans. Despite high mortgage rates, this demand is expected to drive continued strong performance and revenue growth as inventory and home prices stabilize, impacting overall revenue positively.
  
• A focus on zero-based budgeting and cost management is set to offset recent unexpected costs, with a commitment to maintaining a lean operating structure. This fiscal discipline is anticipated to improve future net margins and earnings despite ongoing investments in growth initiatives.
  
• Potential growth in the dormant mortgage business segment, triggered by any future reduction in mortgage rates, could unlock significant revenue opportunities, further enhancing LendingTree's earnings potential.

LendingTree Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LendingTree's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.7% today to 4.8% in 3 years time.
• Analysts expect earnings to reach $55.4 million (and earnings per share of $3.79) by about May 2028, up from $-55.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from -10.6x today. This future PE is greater than the current PE for the US Consumer Finance industry at 10.2x.
• Analysts expect the number of shares outstanding to grow by 2.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.82%, as per the Simply Wall St company report.

LendingTree Future Earnings Per Share Growth

Risks

• Temporary regulatory headwinds in the insurance business and onetime expenses have impacted adjusted EBITDA, although improvements are anticipated, fluctuations could affect net margins or earnings.
  
• A disruption from the FCC's pending one-to-one consent rule, combined with a marketing correction from a specific insurance carrier, led to softer insurance performance than forecasted, potentially impacting revenue and margins.
  
• Prevailing high mortgage rates continue to suppress demand for new homebuyers and refinancing, affecting revenue growth in the Home segment.
  
• Concerns regarding tariffs and potential secondary effects such as interest rates or significant inflation could impact overall demand for consumer products, impacting revenue.
  
• Potential risks include insurance carrier profitability impacts from tariffs, which might affect demand for customer acquisition, consequently potentially impacting future earnings.

Valuation

• The analysts have a consensus price target of $63.143 for LendingTree based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $60.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $55.4 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $43.22, the analyst price target of $63.14 is 31.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.