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What Do Open Lending’s Newly Added Risk Factors Reveal?

Texas-based Open Lending (LPRO) provides automated lending services to banks and credit unions across the U.S. It specializes in the auto loans market where it offers solutions such as loan analytics, risk modeling, and risk-based pricing.

Open Lending’s upcoming earnings report is set for February 24, when it will release its results for Q4 2021 and full-year 2021. The company guided for full-year revenue in the range of $200 million to $212 million, yet Wall Street is expecting revenue of $219.4 million.

For Q3 2021, the company reported a 98% year-over-year increase in revenue to $58.9 million, surpassing the consensus estimate of $54.7 million. It posted EPS of 0.23, which beat the consensus estimate of $0.21 and improved from a loss per share of $0.62 in the same quarter the previous year.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Open Lending.

Risk Factors

According to the new TipRanks Risk Factors tool, Open Lending’s main risk category is Finance and Corporate, representing 42% of the total 62 risks identified for the stock. Legal and Regulatory and Ability to Sell are the next two major risk categories at 24% and 13% of the total risks, respectively. The company recently updated its profile with two new risk factors.

The company cautions that the phasing out of LIBOR may have adverse effects on its operating results and financial condition. It explains that some of its credit agreements are based on LIBOR, and a shift to an alternative benchmark could lead to disruptions that may have an unfavorable impact on the value of LIBOR-linked securities.

Open Lending informs investors that the global chip shortage has been a blow to its business and cautions that the problem may persist for a long time. It explains that the limited semiconductor chip supply has forced automakers to reduce the production of new vehicles. The lower level of new vehicles coming to the market has diminished the demand for auto loans. As a result, demand for the loan payment protection solution that Open Lending offers lenders has also been reduced.

Amid the chip shortage, automakers are prioritizing the production of expensive models that carry high profit margins. But Open Lending serves a market for people purchasing less expensive cars. With only a limited number of vehicles coming to market, vehicle prices have also generally gone up. The high prices have pushed out many potential borrowers, further reducing auto loan demand and adversely impacting the demand for Open Lending’s solutions.

In an updated previously highlighted risk factor, Open Lending emphasizes the restrictions it faces under its credit agreements. It explains that the agreements contain terms that could force it to forgo some opportunities that would otherwise improve its prospects. For example, it mentions that its ability to engage in mergers or acquisitions has been limited due to the credit terms. Furthermore, a default on the credit agreements may trigger actions that could make it difficult for Open Lending to fund its operations.

The Finance and Corporate risk factor’s sector average is 48%, compared to Open Lending’s 42%. Open Lending’s shares have declined about 49% over the past 12 months.

Analysts’ Take

Jefferies analyst Ryan Carr recently reiterated a Buy rating on Open Lending stock but lowered the price target to $30 from $40. Carr’s reduced price target still suggests 69.49% upside potential.

Consensus among analysts is a Strong Buy based on 6 Buys and 1 Hold. The average Open Lending price target of $35.14 implies 98.53% upside potential to current levels.

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