Goldman Sachs Sees 27% Upside in SLM Corp. (SLM) and Adds Stock to Conviction Buy List
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(Updated - August 10, 2016 8:50 AM EDT)
Goldman Sachs maintained its Buy rating on SLM Corp. (NASDAQ: SLM) and added the stock to its Conviction Buy List. The price target was unchanged at $9, implying upside of 27%. Analyst Eric Beardsley thinks SLM's high visibility revenue growth deserves a significantly higher multiple.
"We add Buy-rated SLM to the Americas Conviction List as we believe it offers the best risk-adjusted return potential in our Specialty Finance coverage universe (26% upside vs. 15% median) given high visibility into its 20%+ EPS CAGR and 15%+ ROE," said Beardsley. "Following 2Q results, we have incremental confidence in SLM’s earnings growth as (1) charge-off trends were betterthan-expected (up only 10 bp q/q despite annual peak – 13% below our estimate), 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."
Discussing catalysts, the analyst said, "Moving forward, we see continued opportunity for SLM to re-rate higher as (1) 3Q is the seasonal peak for originations and could re-focus investors on SLM’s growth story (in addition to providing further confidence in the credit outlook); (2) political risks appear to be more noise than news and could fade following the election; and (3) SLM has under-appreciated asset sensitivity, in our view, as earnings should benefit if 1M LIBOR rises, but unlike other banks, it faces no margin pressure in a ‘lower-for-longer’ world due to limited competition in private student lending."
Shares of SLM Corp. closed at $7.09 yesterday.
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Related EntitiesGoldman Sachs Conviction Buy List, Goldman Sachs, Earnings
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