On Tuesday, Citi upgraded LexinFintech Holdings (NASDAQ:LX) from Neutral to Buy, significantly increasing the price target to $4.40 from the previous $1.80. The upgrade follows LexinFintech's third-quarter financial performance, which showed a solid non-GAAP net profit after tax (NPAT) of RMB 358 million, marking a 43.4% increase from the previous quarter, though a 15.6% decrease year-over-year. The nine-month non-GAAP NPAT reached RMB 838 million, approximately 83% of the full-year 2024 consensus estimate.
LexinFintech's loan volume was nearly consistent with management guidance, showing a slight 0.3% quarter-over-quarter decrease and a 19.5% drop compared to the same period last year, totaling RMB 51.0 billion for the third quarter of 2024. However, net revenue after provision exceeded expectations, climbing 10.7% from the last quarter and 6.5% year-over-year to RMB 1.66 billion. This increase was attributed to a notable reduction in funding costs, which decreased by 98 basis points in the third quarter.
The company has expressed intentions to increase its dividend payout ratio to 25% for the estimated 2025 fiscal year, up from about 20% in the first half of 2024. Additionally, there is potential for a further increase in the payout ratio if profitability continues to improve.
Citi has substantially raised its earnings estimates for LexinFintech for the years 2024 to 2026, by 24% to 62%, anticipating continued earnings strength into the 2025 and 2026 fiscal years. The firm expects the net profit take rate by loan volume to recover to approximately 1% by the fourth quarter of 2025, aligning with industry peers. With the improved earnings outlook, Citi has raised the target price-earnings ratio to 3 times and upgraded the stock to Buy, setting a new target price at $4.40.
In other recent news, Lexin has reported a robust financial performance for the third quarter of 2024. The company's total revenue reached RMB 3.7 billion, and net profit rose to RMB 310 million, marking a 36.7% increase from the previous quarter. This successful quarter is attributed to a record take rate and improved asset quality, demonstrated by a 9% decrease in the day 1 delinquency rate from the second quarter.
Lexin's management anticipates considerable net profit growth in 2025, along with an increase in the dividend payout ratio from 20% to 25% starting January 2025. However, the company expects flat to lower single-digit loan origination growth in the fourth quarter. Despite these optimistic projections, Lexin remains cautious about long-term recovery, despite short-term boosts from government economic measures.
CEO Jay Xiao and CFO James Zhang express confidence in improving asset quality and delivering stronger profitability in the coming year.
InvestingPro Insights
LexinFintech Holdings (NASDAQ:LX) has shown impressive financial performance, aligning with Citi's upgraded outlook. InvestingPro data reveals that LexinFintech is currently trading at a P/E ratio of 4.82, which is notably low and supports Citi's valuation assessment. The company's revenue growth of 18.01% over the last twelve months as of Q2 2024 demonstrates strong business momentum, consistent with the positive earnings outlook mentioned in the article.
Two key InvestingPro Tips further reinforce the bullish sentiment: LexinFintech is trading at a low Price / Book multiple of 0.4, indicating potential undervaluation, and the stock has shown a strong return over the last three months, with a remarkable 99.39% price total return. These insights align well with Citi's upgrade and the company's improving financial metrics.
For investors seeking a deeper analysis, InvestingPro offers 7 additional tips that could provide further context to LexinFintech's market position and potential.
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