Back to top

Analyst Blog

On Sep 30, 2013, we reiterated our Neutral recommendation on SLM Corporation (SLM - Analyst Report). The decision was based on the proposed split of the company, which will expectedly help Sallie Mae to navigate through the tough regulatory environment. However, a decrease in net interest income and higher operating expenses were the downsides.

Why Neutral?

To boost the company’s long-term growth in the present economic environment, 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. Taken together, these are expected to drive 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.

Sallie Mae’s second-quarter earnings of $1.02 per share substantially beat the Zacks Consensus Estimate and came above the prior-year quarter figure as well. Over the last 60 days, the Zacks Consensus Estimate for 2013 increased 1% to $2.84, whereas for 2014, it remained stable at $2.51. As a result, Sallie Mae currently carries a Zacks Rank #3 (Hold).

However, the scope and profitability of Sallie Mae’s businesses are exposed to risks arising from legislative and administrative actions. Further, we remain concerned about the run-off of the company’s FFELP loan portfolio, which will weigh further on interest income. In addition, the deteriorating credit quality is a negative for the stock.

Other Stocks Worth Considering

Other financial institutions that are performing better than Sallie Mae include Encore Capital Group, Inc. (ECPG - Snapshot Report), Discover Financial Services (DFS - Analyst Report) and World Acceptance Corp. (WRLD - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%