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A month has gone by since the last earnings report for Sallie Mae (SLM). Shares have added about 12.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sallie Mae due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sallie Mae Q1 Earnings Lag Estimates, NII and Loans Rise
Sallie Mae reported first-quarter 2022 core earnings per share of 46 cents, which missed the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.77 reported in the prior-year quarter.
Sallie Mae’s results benefited from improved net interest margin (NIM) expansion. Private education loan originations were also decent in the quarter. However, less private education loan sales, increased expenses, and a fall in fee income posed major undermining factors.
The company’s GAAP net income attributable to common stock was $127.5 million, down 80% from the prior-year quarter.
NII Improves, Expenses Climb
NII in the first quarter was $375.03 million, up 13% year over year. Also, the reported figure surpassed the Zacks Consensus estimate of $369.2 million. The NIM expanded to 5.29% from 4.40% in the year-ago quarter.
The company’s non-interest income was $22 million, down significantly from the prior-year quarter’s $413 million. The fall mainly stemmed from lower gains on sales of loans.
Sallie Mae's non-interest expenses increased 5.6% year over year to $133 million. The increase mainly resulted from higher FDIC assessment fees, other operating expenses, and compensation and benefits.
Credit Quality Deteriorates
The company recorded a provision for credit losses of $98 million against a negative provision of $226 million in the prior-year quarter.
Delinquencies, as a percentage of private education loans in repayment, were 3.5%, up from 2.1% in the prior-year quarter.
Loans & Deposits Increase
As of Mar 31, 2022, deposits of Sallie Mae were $21.2 billion, up 1.8% sequentially.
Private education loan held for investment was $20.58 billion, up 4.9% on a sequential basis. In the quarter, the company witnessed private education loan originations of $2.2 billion, increasing 6% from the year-ago quarter.
Capital Deployment Activities
In the first quarter, the company repurchased 10 million shares of its common stock for $176 million under its share repurchase programs.
The company expects core earnings per share (on a GAAP basis) of $2.80-$3.
NIM is projected to remain just above 5%.
The company’s non-interest expenses are expected to be $555-$565 million.
It executed 2 billion of loan sales in the second quarter and expects the low-double-digit gain on sale of such loans to be recognized in the second-quarter 2022 results. It expects to sell the last $1 billion of loans this year in the third quarter.
Private education loan originations are projected to grow 8-10% year over year.
It anticipates total loan portfolio net charge-offs of $270-$290 million. Management expects Private Education Loan charge-offs to increase to 2.25% in the second quarter of 2022 and then decrease over the remainder of 2022, totaling 1.75% for 2022. Also, 31-plus day delinquencies will be in the low 3% range for the year.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 123.36% due to these changes.
At this time, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sallie Mae has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Sallie Mae is part of the Zacks Financial - Consumer Loans industry. Over the past month, Ally Financial (ALLY), a stock from the same industry, has gained 0.7%. The company reported its results for the quarter ended March 2022 more than a month ago.
Ally Financial reported revenues of $2.14 billion in the last reported quarter, representing a year-over-year change of +10.2%. EPS of $2.03 for the same period compares with $2.09 a year ago.
Ally Financial is expected to post earnings of $2 per share for the current quarter, representing a year-over-year change of -14.2%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Ally Financial has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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