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Analyst Blog

On Jul 27, Zacks Investment Research upgraded SLM Corporation (SLM - Analyst Report), commonly known as Sallie Mae to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Sallie Mae has been witnessing rising earnings estimates on the back of strong second-quarter 2013 results. Moreover, this leading student lender reaped a year-to-date return of 39.9%. The long-term expected earnings growth rate for this stock is 9.3%.

On Jul 17, Sallie Mae reported second-quarter results. Core earnings were $1.02 per share, ahead of the Zacks Consensus Estimate by 47.8%. Results also compared favorably with 49 cents earned in the prior-year quarter.

An increase in net interest income and lower loan loss provisions primarily boosted the better-than-expected results. However, higher operating expenses were a plausible concern.

Additionally, in order to drive its long-term growth in the present economic environment, in May, Sallie Mae announced the decision to split the company’s present business into 2 parts, namely an education loan management business and a consumer banking business.

We expect the company to benefit from this, as with the division, management’s focus will be on Sallie Mae’s growing consumer banking business and on tackling its education loan portfolios. Together, these are expected to aid bottom-line growth in the near term.

Moreover, the company’s business shift toward private student loans and direct channel loans as well as cost reduction measures – to counter the legislative impact – are positives for the stock. Extensive capital deployment activities also continue to reinforce investors’ confidence in the stock.

The Zacks Consensus Estimate for 2013 increased 12.9% to $2.81 per share over the last 30 days. For 2014, the Zacks Consensus Estimate nudged up 0.4% to $2.51 per share over the same time frame.

Other Stocks to Consider

Well-performing financial stocks that are worth considering include Prosperity Bancshares Inc. (PB - Analyst Report), Washington Federal Inc. (WAFD - Analyst Report) and Banner Corp. (BANR - Snapshot Report). All of them carry a Zacks Rank #1 (Strong Buy).

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