SLM Corporation (SLM)

The shares of SLM Corp. (SLM - Analyst Report), also known as Sallie Mae, sold off sharply on February 26, on the news of the budget proposal by President Obama regarding the elimination of subsidies for student lenders. Further, SLM's 4Q08 core net operating income came in at $0.14 per diluted share, substantially short of our estimate.

Higher funding costs were the primary reason for the lower-than-expected results. However, the performance of the private credit portfolio was better than expected. We expect funding costs to come down slightly once the federally sponsored programs (TALF and Conduit Facility) become operational.

But the proposal for the elimination of private lenders from the student-loan market is a significant threat to the company. As such, we maintain our Sell recommendation on shares of SLM.

We maintain our SELL rating with a lower six-month target price of $7.00.