Why Is Sallie Mae (SLM) Up 9.1% Since Last Earnings Report?
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, underperforming 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 Q3 Earnings Miss Estimates, NII Surpasses
Sallie Mae reported third-quarter 2023 earnings per share of 11 cents, missing the Zacks Consensus Estimate of 33 cents. The bottom line compared unfavorably with the prior-year quarter’s earnings of 29 cents.
A rise in non-interest expenses and lower non-interest income impeded the results. Nonetheless, lower provisions for credit losses, an increase in the NII and robust loan originations were positives.
The company’s GAAP net income was $29 million, down 61.3% from the previous-year quarter. Our estimate for the same was $97 million.
NII Improves, Expenses Climb
NII in the third quarter was $384.6 million, up 4.1% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $368 million.
The NIM expanded 16 basis points to 5.43%.
The company’s non-interest income of $24 million declined 74.7% from the prior-year quarter. This was mainly attributable to net losses on the sale of loans. Our estimate for the same was pegged at $17.3 million.
Sallie Mae's non-interest expenses increased 11.8% to $167 million. The increase mainly resulted from higher compensation and benefits, and FDIC assessment fees. Our estimate for the same was $165 million.
Credit Quality Improves
The company recorded a provision for credit losses of $198 million compared with $208 million in the prior-year quarter. Our estimate for the same was $98.9 million. New loan commitments, net of expired commitments, management overlays, slower prepayment rates and changes in economic outlook, resulted in the higher-than-expected provision for credit losses.
Net charge-offs for private education loans were $95 million. Private education loans held for investment net charge-offs as a percentage of average private education loans held for investment in repayment (annualized) was 2.53%, down from 2.67% year over year.
Balance Sheet Position Strengthens
As of Sep 30, 2023, deposits of Sallie Mae were $21.55 billion, up 5.8% on a sequential basis. Private education loan held for investment was $20.34 billion, up 9.1% on a sequential basis.
In the quarter, the company witnessed private education loan originations of $2.5 billion, increasing 4% from the year-ago quarter.
Share Repurchase Update
In the third quarter, the company did not repurchase any shares under its existing share repurchase program expiring on Jan 25, 2024.
2023 Outlook
The company expects core earnings per share (on a non-GAAP basis) of $2.55-$2.65.
It anticipates total loan portfolio net charge-offs of $375-$385 million.
Private education loan originations are projected to grow 6-7% year over year.
The company’s non-interest expenses are expected to be $625-$630 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 27.54% due to these changes.
VGM Scores
At this time, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sallie Mae has a Zacks Rank #5 (Strong Sell). We expect a below average 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 15.1%. The company reported its results for the quarter ended September 2023 more than a month ago.
Ally Financial reported revenues of $1.97 billion in the last reported quarter, representing a year-over-year change of -2.4%. EPS of $0.83 for the same period compares with $1.12 a year ago.
For the current quarter, Ally Financial is expected to post earnings of $0.58 per share, indicating a change of -46.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -4% over the last 30 days.
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 C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SLM Corporation (SLM) : Free Stock Analysis Report
Ally Financial Inc. (ALLY) : Free Stock Analysis Report
