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Why Is Sallie Mae (SLM) Up 9.1% Since Last Earnings Report?

·4 min read

It has been about a month since the last earnings report for Sallie Mae (SLM). Shares have added about 9.1% 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 Tops on Q4 Earnings, Costs Climb

Sallie Mae reported fourth-quarter 2021 core earnings per share of $1.05, which surpassed the Zacks Consensus Estimate of $1.01. The bottom line compared unfavorably with $1.15 reported in the prior-year quarter.

Sallie Mae’s results benefited from improved fee income and net interest margin (NIM) expansion. Private education loan originations were also decent in the quarter. However, an increase in expenses and a deteriorating balance sheet position posed major undermining factors.

The company’s net income attributable to common stock was $305 million, down from $431 million in the prior-year quarter.

For the full year, earnings per share were $3.67, comparing favorably with the year-ago earnings of $2.23 per share. The same beat the consensus mark of $3.57. Net income available to common shareholders was $1.2 billion, up from $871 million in 2020.

NII Improves, Expenses Climb

In 2021, NII was down 5.8% from the prior-year level to $1.39 billion. Also, the reported figure missed the Zacks Consensus Estimate of $1.41 billion.

NII in the fourth quarter was $367.4 million, up marginally year over year. However, the reported figure missed the Zacks Consensus estimate of $381.9 million. The NIM expanded to 5.13% from 4.82% in the year-ago quarter.

The company’s non-interest income was $152.8 million, up significantly from the prior-year quarter. The rise mainly stemmed from higher other income and net gain on sales of loans.

Sallie Mae's non-interest expenses increased 1.3% year over year to $125.5 million. The increase mainly resulted from higher FDIC assessment fees and other operating expenses, offset by lower costs due to compensation and benefits.

Credit Quality: A Mixed Bag

The company recorded a benefit for provision for credit losses of $15 million against expenses of $316 million in the prior-year quarter.

Delinquencies as a percentage of private education loans in repayment were 3.3%, up from 2.8% in the prior-year quarter.

Loans & Deposits Decrease

As of Dec 31, 2021, deposits of Sallie Mae were $20.8 billion, down 0.3% sequentially.

Private education loan held for investment was $19.6 billion, down 4.6% on a sequential basis. In the quarter, the company witnessed private education loan originations of $737 million.

Enhanced Capital Deployment Activities

In the fourth quarter, the company repurchased 14 million shares of its common stock for $263 million under its share repurchase programs.

Sallie Mae's board of directors also approved a $1.25-billion share buyback authorization, expiring on Jan 25, 2024. The amount is in addition to the remaining $26-million authorization (as of Jan 25, 2022) under the 2021 share repurchase program.

2022 Outlook

The company expects core earnings per share (on a non-GAAP basis) of $2.80-$3.

It anticipates total portfolio net charge-offs of $255-$275 million.

Private education loan originations are projected to grow 8-10% year over year.

Management expects Private Education Loan charge-offs to increase to nearly 2% in the first quarter of 2022 and then decrease over the remainder of 2022, totaling 1.75% for 2022.

NIM is projected to remain just above 5%.

The company’s non-interest expenses are expected to be $555-$565 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Sallie Mae has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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