SLM - SLM Navient initiated at Underperform at Morgan Stanley on near-term headwinds

Morgan Stanley analyst Jeffrey Adelson initiated Underweight ratings on Navient ( NASDAQ: NAVI ) and SLM Corp. ( NASDAQ: SLM ) on Friday as near-term headwinds of higher rates, rising delinquencies, and political/regulatory matters are likely to weigh on its earnings.

Navient ( NAVI ) stock has dropped 3.3% and SLM ( SLM ) is down 2.6% in Friday morning trading. By comparison, the S&P 500 has slid 2.5% .

The student loan sector does have a number of tailwinds in its favor, including post-COVID growth in private student loans as campuses return to more normal operations and the moratorium on student loan payments ends, the analyst said.

Adelson pointed to some factors specific to SLM ( SLM ) that lead to the Underweight rating, specifically deterioration in credit quality and gain on sale. "And with interest rates sharply higher, gain on sale margins are heading lower," the analyst wrote in a note to clients.

For Navient ( NAVI ), Adelson sees risk of FFELP loans running off at a faster pace, impacting forward EPS. In addition, higher rates will hurt student loan refinancing opportunity, its primary growth engine.

SA's Quant rating is also bearish on SLM ( SLM ) with a Sell rating, citing negative EPS revisions and decelerating momentum. Adelson's Underperform rating contrasts with the average Wall Street rating of Buy.

For NAVI, the SA Quant rating is Hold as is the average Wall Street rating.

See SLM and NAVI's stock performance over the past year in comparison with the S&P 500 and student loan-related stocks SoFi ( SOFI ) and Nelnet ( NNI ) in this chart.

Sheen Bay Research stays Neutral on SLM on the expectation that higher provisioning will offset revenue growth.

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