Analysts at BTIG equity research initiated coverage on the shares of OnDeck Capital Inc (ONDK) with a Buy rating and a $25 price target on Monday.
OnDeck Capital poised for outsized growth
In a note to investors, BTIG analysts Mark Palmer and Giuliano Bologna stated that OnDeck Capital’s online platform for small-business lending is innovative and it positioning the company towards sustainable and outsized growth.
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The analysts noted that $300 billion small-business lending market has an estimated unmet demand of around $80 billion to $120 billion because of the fact that traditional lenders are ignoring the sector.
According to Palmer and Bologna, traditional lenders are reluctant to lend to small businesses because of the difficulty in assessing their credit worthiness in a uniform manner.
The analysts emphasized that OnDeck Capital can make efficient assessments using its next generation proprietary data and analytics engine and small-business credit scoring model. The company also managed to keep its net charge-off rate in the range of 6% to 7%.
In addition, Palmer and Bologna observed that the highly automated platform of OnDeck Capital allows it to optimize application time for entrepreneurs. Borrowers are able to apply online any time and receive a decision in 15 minutes and their loans are funded in the same day.
OnDeck Capital differentiates itself from traditional banks
The analysts expected ONDeck capital to rapidly grow its origination volume as awareness regarding its value proposition for small business increased.
According to them, the company was able to differentiate itself from traditional banks in terms of ease of use, focus on small businesses and minimal regulation.
Palmer and Bologna said the United States has approximately 7 million small businesses with annual revenue of at least $100,000, which is the minimum requirement of OnDeck Capital for an applicant. The analyst also noted that small businesses in the country have some form of credit to maintain cash flow.
In addition, the analysts believed that OnDeck Capital’s current strategic partners and expansion opportunities overseas could boost even more robust growth rates.
Furthermore, Palmer and Bologna observed that the company’s customer lifetime value characteristics are attractive. They also believed that its ability to access securitization market and the growth of OnDeck Marketplace should help the company reduce its funding costs while diversifying its funding mix.