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Sallie Mae (SLM) Down 4.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Sallie Mae (SLM - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sallie Mae due for a breakout? 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 drivers.

Sallie Mae Tops Q2 Earnings Estimates, Ups '21 Outlook

Sallie Mae reported second-quarter 2021 core earnings per share of 45 cents, which handily surpassed the Zacks Consensus Estimate of 39 cents. The bottom line compared favorably with a loss of 22 cents reported in the prior-year quarter.

Results benefited from the company’s prudent cost management and improved fee income. Benefit from loan losses was another tailwind. However, lower NII on a decline in average loans outstanding posed a major undermining factor.

The company’s GAAP net income attributable to common stock was $139 million against a GAAP net loss of $88 million a year ago.

NII Declines, Expenses Fall

NII in the second quarter was $338.8 million, down 2.9% year over year. The decline is attributable to the sale of private education and personal loan portfolios in the prior quarters. It also lagged the Zacks Consensus estimate of $342.6 million.

Net interest margin expanded to 4.7% from 4.55% in the year-ago quarter.
The company’s non-interest income was $52 million, up 79% from the prior-year quarter. The rise mainly stemmed from higher other income and gain on sales of loans.

Sallie Mae's non-interest expenses fell 10% year over year to $128 million. The fall mainly resulted from lower FDIC assessment fees, compensation and benefits, and other operating expenses, partly offset by higher restructuring expenses.

Credit Quality Improves

The company recorded a provision for loan losses of $70 million, significantly lower than $352 million in the prior-year quarter. Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 2.2%.

Loans & Deposits Decrease

As of Jun 30, 2021, deposits of Sallie Mae were $21.1 billion, down 7.4% sequentially. Lower brokered deposits contributed to the downside.

Private education loan held for investment (96% of total loans) was $19.4 billion, down 1.2% on a sequential basis. In the quarter, the company witnessed private education loan originations of $533 million.

Capital Deployment Activities

In the second quarter, the company repurchased 23 million shares of its common stock for $439 million under its share repurchase programs.

With this, as of Jun 30, it had $295 million of remaining capacity under the original $1.25-billion authorization program, which will expire on Jan 26, 2023.

2021 Outlook

The company raised its earnings per share (on a GAAP basis) projection to $3.15-$3.25 from $2.95-$3.15 mentioned earlier.

Net interest margin is projected at 4.75% on the back of the expectation of continued margin expansion in the second half of the year.

Total portfolio net charge-offs of $215-$225 million are anticipated for 2021, down from the previously mentioned $260-$280 million.

Private education loan originations are projected to grow 6-7% year over year. The company’s non-interest expenses are expected to be $525-$535 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted -5.26% 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 bit better with a D. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sallie Mae has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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