Sallie Mae Trading on NASDAQ

Zacks Equity Research
December 13, 2011

Yesterday, SLM Corp. (NYSE:SLM - News), commonly known as Sallie Mae, began trading on the NASDAQ stock market under the ticker symbol SLM. The company also launched a new corporate logo. Last month, the company had announced its decision to leave the New York Stock Exchange.

In October, Sallie Mae reported third quarter core earnings of $188 million or 36 cents per share, in line with the Zacks Consensus Estimate. Favorable results at Sallie Mae were primarily driven by an increase in student loan originations as well as improved credit quality with declines in student loan delinquencies and operating expenses. 

However, on a GAAP basis, Sallie Mae reported third-quarter 2011 net loss of $47 million or 10 cents per share, comfortably lower than the loss of $495 million or $1.06 per share in the comparable quarter last year.

The loss stemmed from a $371 million unrealized, mark-to-market loss on certain derivative contracts recognized in the reported quarter. Notably, the year-ago quarter’s results included a $269 million unrealized, mark-to-market loss and a $660 million impairment of goodwill and intangibles.

For full-year 2011, management expects to generate core earnings of $1.80 per share and anticipates private education loan originations of $2.7 billion. Reduction of expenses is the company’s primary focus. Moreover, the company expects to achieve its quarterly operating expense target of $250 million by fourth-quarter 2011.

We believe that Sallie Mae’s leading position in the student lending market, its cost curtailment initiatives and the federal student loan assets acquisition augur well. The company successfully accomplished the acquisition of $25 billion in securitized federal student loan assets from The Student Loan Corporation, a Citigroup Inc. (NYSE:C - News) subsidiary, in December 2010. The purchase boosted Sallie Mae’s customer base by approximately 1.3 million and promises earnings accretion ahead.

However, the pause on new federal student loan origination to comply with the legislation impacts revenue generation at student lenders such as Sallie Mae and Nelnet Inc. (NYSE:NNI - News). Yet, the company’s diversifying efforts coupled with an economic recovery, though at a sluggish pace, would support its earnings by expanding its private education loan business and reducing its loan loss provision expenses. Capital deployment efforts also boost investors’ confidence on the stock. The move to get enlisted at NASDAQ is also expected to give greater visibility to investors and Sallie Mae’s management acknowledged NASDAQ’s flair for innovation.

SLM shares currently retain its Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we have an Outperform recommendation on the stock.

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