Goldman Sachs Adds SLM Corp. To Conviction Buy List, Sees 3 Catalysts Driving Upside Re-Rating

Although SLM Corp SLM shares have outperformed the market year-to-date, Goldman Sachs’ Eric Beardsley stated that the stock continues to trade at a significant discount to other banks and specialty lenders, especially when its meaningfully higher growth trajectory is factored in.

Beardsley maintained a Buy rating on the company, with a $9 price target.

Adding the stock to the Americas Conviction Buy List, the analyst mentioned that SLM Corp. offers the best risk-adjusted among Goldman Sachs’ Specialty Financial coverage universe.

Incremental Confidence

“Following 2Q results, we have incremental confidence in SLM’s earnings growth as (1) charge-off trends were better-than-expected, while conservative reserve guidance also lowers the bar for 2H results, and (2) SLM’s first-ever CFPB review was positive with no action items for the company, reducing the tail risk of unanticipated opex growth,” Beardsley mentioned.

Catalysts For Re-Rating

The analyst expects SLM Corp. to re-rate higher going forward, since Q3 is the seasonal peak for originations and was likely to bring back investor focus on the company’s growth story.

In addition, Beardsley pointed out that “political risks appear to be more noise than news and could fade following the election.”

The analyst believes the company has “underappreciated asset sensitivity,” given that earnings were expected to benefit if 1M LIBOR were to rise, although unlike other banks, SLM Corp. does not face any margin pressure due to limited competition in the private student lending segment.

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