Wedbush: Buy SLM On Continued Weakness

SLM Corp SLM's stock performance over the past few years has been "dismal" despite "significant" improvements across multiple metrics, according to Wedbush.

The Analyst

Wedbush's Henry Coffey maintains an Outperform rating on SLM with an unchanged $13 price target.

The Thesis

SLM's student private student loan quality remains "excellent" and a recent copy of the student loan handbook suggests metrics are stable to improving across the private and federal student loan market segment, Coffey wrote in a note. Encouragingly, 90 percent of the company's loans are cosigned by a parent and this is typically a factor in determining the employment conditions after graduation.

Meanwhile, the adoption of Current Expected Credit Losses (CECL) would lower the company's book value (as of March 31) from $6.06 to $3.92, the analyst wrote. However, a review of data now points to a "less harsh" impact on earnings than previously expected although the company will release detailed commentary on CECL in July.

Looking forward the price of education is likely to continue rising but the company should be able to find venues to support a loan growth of 12 to 15 percent a year along with earnings growth of at least 12 percent, the analyst wrote.

Finally, SLM is an ideal example of a stock whose fundamentals and growth prospects are "exceptional" but the stock just can't "catch a premium valuation," the analyst wrote. As such, investors should consider being a buyer of SLM's stock at current levels.

Price Action

Shares of SLM closed higher by 0.4 percent at $9.55 Monday.

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