On Apr 8, 2013, we reiterated our Neutral recommendation on SLM Corporation (SLM), also known as Sallie Mae. The decision is based on its higher debt repurchase gains. However, decreased net interest income and increased operating expenses were the downsides.
Sallie Mae’s fourth-quarter earnings of 55 cents per share were ahead of the Zacks Consensus Estimate and surpassed the prior-quarter earnings by 8%. Earnings were aided by higher debt repurchase gains. However, decreased net interest income, elevated operating expenses and higher loan loss provision were the downside.
Over the last 60 days, the Zacks Consensus Estimate for 2013 increased 2%, whereas for 2014 it inched up only 1%. As a result, Sallie Mae carries a Zacks Rank #3 (Hold).
Moreover, Sallie Mae’s leading market position coupled with a major chunk of market share is a growth driver. Further, the company’s operations are more dependent on students’ demand for educational loans, which is expected to be fairly strong in the foreseeable future. Further, the company’s business shift toward private student loans and direct channel loans and cost reduction measures in order to counter the legislative impact are positives for the stock. Extensive capital deployment activities also continue to reinforce investors’ confidence in the stock.
However, the scope and profitability of Sallie Mae’s businesses are exposed to risks arising from legislative and administrative actions. Further, we remain concerned about the run-off of its FFELP loan portfolio, which would pressurize the interest income of Sallie Mae. In addition, the rating downgrades and a deteriorating credit quality are negatives for the stock.
Other Stocks Worth Considering
Other financial institutions that are performing better than Sallie Mae include CU Bancorp (CUNB), Flagstar Bancorp Inc. (FBC) and First Defiance Financial Corp. (FDEF). All these stocks carry a Zacks Rank #1 (Strong Buy).
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