Three stocks to play as student loan repayment slashes borrowers’ budgets, Jefferies says

Published Tue, Sep 26 20231:31 PM EDTUpdated Tue, Sep 26 20231:44 PM EDT

Federal student loan payments are coming back in October and a trio of stocks are set to shine as borrowers cut their spending, according to Jefferies. Payments on federal student loans had been paused since March 2020 as part of a package of Covid-era relief measures. Interest on these debts resumed accruing on Sept. 1. Those payments will likely put a dent in borrowers' budgets. A recent poll of about 630 U.S. consumers with student loan debt found that the majority expect to pay $500 or less each month, Jefferies found. That's also bad news for an array of retailers. "Notably, nearly 90% of respondents are at least somewhat concerned about being able to meet all of their monthly expenses, while apparel, footwear, accessories, restaurants and big-ticket items are likely to see the biggest pullbacks in spending," Jefferies analyst Randal Konik wrote in a report Monday. But that also means other companies stand to gain as shoppers become mindful of their budgets. To that end, Jefferies called out three top picks in its value retail coverage. "WMT has a degree of downside protection due to potential trade-down," the firm noted. "And TJX remains best-positioned within the off-price space." Walmart beat Wall Street's estimates for sales and earnings in its fiscal second quarter and hiked its full-year earnings forecast. Shares of the big-box retailer are up 15% year to date, but analysts' average price target suggests nearly 10% upside from here, according to LSEG. formerly known as Refinitiv. TJX , the parent of T.J. Maxx, Marshalls, HomeGoods and Sierra and another favorite of budget-minded shoppers, saw fiscal second-quarter earnings and revenue both exceed Wall Street estimates as consumers sought deals at a discount. Shares are up more than 10% year to date and analysts' average price target calls for 35% upside from here, according to LSEG. Finally, Costco Wholesale rounds out Jefferies' top three picks in value retail coverage. The company will post fiscal fourth-quarter results after the stock market closes Tuesday. Shares have popped 21% this year, leaving analysts to only see 3% further upside from here, according to LSEG. — CNBC's Michael Bloom contributed reporting.