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Higher Originations Aid Sallie Mae's Profits: Time to Buy?

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On Jun 25, we issued an updated research report on Sallie Mae SLM. The company’s focus on strengthening its Private Education Loan assets and revenues, along with maintaining a strong capital position, bode well for the long term. Moreover, the economic recovery and declining unemployment rate are likely to help it maintain a leading position in the lending market for students.

However, escalating expenses remain a headwind. Further, Sallie Mae faces concentration risks due to overdependence on brokered deposits.

The Zacks Consensus Estimate for the company’s current-year earnings has witnessed rise of 1% over the past seven days and now stands at $1.02. As a result, the stock currently carries a Zacks Rank #2 (Buy).

Shares of Sallie Mae have gained 6.8% over the past three months, outperforming the industry’s rally of 2.7%.

Notably, loan originations have increased 4% in 2017, with the trend continuing in the first three months of 2018. Thus, the company seems on track to achieve originations of about $5 billion in 2018. Also, management expects to improve efficiency ratio through growth in service portfolio loans and prudent expense management.

Moreover, Sallie Mae is the dominant player in every phase of the student loan life cycle, providing the continuing competitive advantage of scale. As per recent trends and projections, Sallie Mae expects modest growth in enrollment for several upcoming years, leading to higher demand for education loans. This expectation, combined with increasing tuition costs, should drive solid growth for Sallie Mae in the future.

Other Stocks to Consider

The Zacks Consensus Estimate for current-year earnings of Enova International, Inc. ENVA has been revised 7% upward in the last 30 days. Also, its share price has risen 61.3% over the past three months. Presently, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

First Cash FCFS currently has a Zacks Rank of 1. Its earnings estimates for 2018 have been revised 3.2% upward over the last 30 days. Further, in the past three months, the company’s shares have gained 13.2%.

The Zacks Consensus Estimate for Navient Corporation’s NAVI current-year earnings has been revised upward by a cent in the last 30 days. Also, its share price has appreciated 4% in three months' time. It currently carries a Zacks Rank of 2.

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