SLM Shares Initiated With Buy Rating, $9 Target At DA Davidson

DA Davidson’s Arren Cyganovich initiated coverage of SLM Corp SLM with a Buy rating and a price target of $9.

SLM is a leading private education loan [PEL] provider in the US, with an estimated origination market share of 54 percent in 2015. SLM’s shares appear to be undervalued, given the company’s dominant market position and expected growth, analyst Arren Cyganovich mentioned.

Lifting Of Regulations To Boost Growth Prospects

SLM recorded significant volatility in its earnings due to certain regulatory restrictions. The company was forced to sell loans for gains and pull forward earnings to stay within a regulatory cap of 20 percent annual loan growth, Cyganovich pointed out. The growth limit has now been lifted, thus improving the visibility into the company’s future loans and earnings growth.

“After removing required asset sales by its regulators, we believe SLM is positioned to grow its private education loan portfolio at a high rate and generate strong returns. While earnings will be lower than 2015 absent sale gains, underlying core earnings growth remains evident with 37% EPS expansion expected in 2017 and 24% in 2018,” the analyst commented.

Cyganovich believes that SLM’s strong origination platform, including a large salesforce, good relations with 2,000 schools and a unique customer base, drive robust results besides making the company an attractive potential acquisition candidate.

News About Possible Free Education To Cause Some Volatility

The probability of free education for students, as promised by Democratic candidates, appear limited, given the high price tag of up to $700 billion over a 10-year period. The analyst added, however, that headlines surrounding such plans may cause some volatility in SLM’s shares.