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On Thursday, BofA Securities revised its stance on MeridianLink (NYSE:MLNK), currently trading at $20.83 with a market capitalization of $1.57 billion, downgrading the stock from Buy to Underperform and reducing the price target to $18 from the previous $28. The decision comes as analysts anticipate the impact of persistently high interest rates on the company’s financial performance. MeridianLink, known for its loan origination platform tailored to credit unions, is expected to experience delayed revenue growth until 2026 due to its revenue model, which is closely linked to the volume of mortgage and consumer loans processed.
The downgrade reflects concerns that the higher-for-longer interest rate environment will likely result in fewer loans, directly affecting MeridianLink’s revenue growth, which currently stands at 4%. With the company’s earnings closely tied to loan volumes and a robust gross margin of 71.8%, the current financial climate poses a challenge to its near-term prospects. According to InvestingPro analysis, the company has not been profitable over the last twelve months, though analysts predict profitability this year. The analysts predict that this situation will cause MeridianLink’s shares to underperform compared to other vertical software peers until signs of a revenue growth recovery become evident.
BofA Securities highlighted MeridianLink’s robust loan origination platform, acknowledging its appeal within the target market of credit unions. Despite this, the market conditions characterized by elevated interest rates are expected to suppress loan volumes, leading to diminished revenue growth for MeridianLink. InvestingPro data shows the company maintains strong liquidity with a current ratio of 1.86, indicating solid financial stability despite current market challenges. Subscribers can access 5 additional key ProTips and comprehensive analysis through the Pro Research Report. The analysts’ revised price objective of $18 reflects a significant decrease from the prior target, underscoring the recalibrated expectations for the company’s financial outlook.
MeridianLink’s performance and stock valuation are anticipated to trail behind those of its industry counterparts for some time. The company’s shares may not see substantial appreciation until a recovery in revenue growth is clearly on the horizon, as indicated by the analysts’ report.
The update from BofA Securities provides investors with a revised perspective on MeridianLink’s future in light of the ongoing economic conditions. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value, aligning with BofA’s cautious stance. The lowered price target and downgrade to an Underperform rating signal a cautious outlook for the company’s stock in the near term. For deeper insights into MeridianLink’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, MeridianLink has reported a 5% year-over-year revenue growth in Q3 2024, reaching $80.4 million, along with an adjusted EBITDA of $33.8 million. The company also returned $31.3 million to shareholders through stock buybacks and reported $18.7 million in free cash flow. Looking to the future, MeridianLink projects Q4 2023 revenue to be between $76 million and $80 million and full-year 2024 revenue to increase by 3% to 4%, reaching between $313 million and $317 million.
MeridianLink has also made strategic partnerships with Shastic and ScoreNavigator to boost automation and enhance credit analysis tools respectively. UBS has upgraded MeridianLink to Neutral with a raised target of $25.50, citing the company’s steady revenue and earnings performance and an anticipated positive shift in the lending environment for 2025.
These are recent developments that investors should be aware of.
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