ONON - UBS Research: Softgoods sales stock prices to decline when student loan payments resume

2023-09-21 12:05:53 ET

UBS analysts expect consumer spending for softgoods and the related stock prices to decline due in part to the resumption of student loan payments in October.

The total annual student loan repayment for all U.S. consumers, UBS said, is estimated to be between $65–$70B over the next year, compared to when it paused.

A September survey published on Thursday said that 40% of respondents plan to reduce spending on apparel to afford their student loan payments.

“If the student loan issue causes consumers to shift $10B away from softgoods (which is estimated to be $500B for all U.S. sales) in order to repay student loans, this would be a 2% headwind on industry sales,” UBS analysts said.

Adults with student loans comprise 14.7% of the U.S. population, according to the survey, with 38 million adults. 65.2% of them (25 million) did not make payments during the Covid-19 pandemic.

Of those, 78.8% (roughly 20 million) said they would resume payments, which are estimated to be at a monthly average minimum of $225.

The annualized average monthly minimum per U.S. adult with student loans who would resume payments after the pandemic is $2,696. The total annualized amount for all U.S. adults resuming their payments is $53B, but the estimated total annualized actual amount is $67.5B, according to the data.

In the softline stock universe, earnings per share estimates, according to UBS analyses, are 13% below consensus for the average stock for fiscal year 2024.

Other investors, UBS says, believe that the issue of student loan repayment “is too small to matter” and that borrowers “won’t actually have to start replaying their loans.”

This could cause a “significant softgood industry sales growth rate deceleration,” they believe.

Stocks like ( VSCO ), ( CRI ), ( TPR ), ( GPS ), ( TJX ), ( CROX ), ( PLCE ), ( DBI ), ( VFC ), and ( AEO ) are classified as having high leverage for consumers who are going to start repaying student loans, UBS said.

UBS also rates these stocks as “buys”: ( UAA ), (ATZ), ( AEO ), ( PVH ), ( ONON ), ( NKE ), ( LEVI ), ( KTB ), ( GIL ), ( RL ), ( DECK ), ( SKX ), and ( SIG ).

And these stocks as “sell”: ( M ), ( VSCO ), ( BURL ), ( JWN ), ( ROST ), ( KSS ), ( URBN ), ( FL ), ( GPS ), and ( DDS ).

More on U.S. student loan payments:

• Consumer stocks are in the spotlight with student loan repayments and food disinflation in the mix
• Student loan repayments to start up in October - Will it spark a recession?
• Student Debt: The U.S. Consumer And Investment Implications

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