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Sallie Mae (SLM) Struggles With Rising Costs: Time to Sell?

Zacks Equity Research

On Aug 23, we issued an updated research report on Sallie Mae SLM. The company’s profitability continues to be curbed by escalating expenses. Also, it faces concentration risk due to over dependence on broker deposits as a key source of funding.  

The student lender reported in-line earnings in second-quarter 2017. The results reflected higher net interest income along with improved loans and deposit balance. However, higher expenses and lower non-interest income were on the downside.

Sallie Mae shares have lost 6.4% year to date compared with the industry’s decline of 6.2%.

Further, the Zacks Consensus Estimate for the company’s current-year earnings have been revised 1.4% downward over the past 60 days. As a result, the stock carries a Zacks Rank #4 (Sell).

Sallie Mae’s expenses have witnessed a compound annual growth rate of 12.1% over a period of five years (ended 2016).

The company remains dependent on the broker deposits as a major source of financing. Moreover, the generation of deposits from non-brokered channels would be requiring some time. Thus, this significant exposure to a source of funding remains a concern.

Nevertheless, the loan originations have increased 8% in 2016, with the trend continuing in the first six months of 2017. Thus, the company seems on track to achieve originations of about $4.9 billion in 2017. Also, management expects to improve efficiency ratio through prudent expense management and growth in service portfolio loans.

Better-Ranked Stocks

Some better-ranked stocks in the finance space are JPMorgan Chase & Co. JPM, State Street Corporation STT and Carolina Financial Corporation CARO. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

JPMorgan’s Zacks Consensus Estimate for current-year earnings have been revised 2.9% upward in the last 60 days. The company’s share price has increased almost 38.8% in a year.

State Street has witnessed its Zacks Consensus Estimate for the current-year earnings revising 3.9% upward, over the last 60 days. Also, its shares have gained 35.4% in a year’s time.

Carolina Financial has witnessed an upward Zacks Consensus Estimate revision of 8.9% for the current year, over the last 60 days. Its share price has increased 55.5% in the past year.

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