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Sallie Mae (SLM) Up 0.3% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Sallie Mae (SLM - Free Report) . Shares have added about 0.3% 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 Tops Q3 Earnings Estimates, Hikes Dividend
Sallie Mae reported third-quarter 2021 core earnings per share of 24 cents, which handily surpassed the Zacks Consensus Estimate of 17 cents. The bottom line compared unfavorably with 45 cents reported in the prior-year quarter.
Results benefited from the company’s prudent cost management and improved fee income. Private education loan originations were also strong in the quarter. The company enhanced its capital deployment plans. However, lower NII on a decline in interest income from loans posed a major undermining factor.
The company’s GAAP net income attributable to common stock was $73 million, down 57% year over year.
NII Declines, Expenses Fall
NII in the third quarter was $357.5 million, down 2% year over year.
Nonetheless, the reported figure outpaced the Zacks Consensus estimate of $342.7 million. The net interest margin expanded to 5.03% from 4.79% in the year-ago quarter.
The company’s non-interest income was $14 million, up 40% from the prior-year quarter. The rise mainly stemmed from higher other income, and gain on derivatives and hedging activities.
Sallie Mae's non-interest expenses fell 7.2% year over year to $141 million. The fall mainly resulted from lower restructuring expenses, partly offset by higher FDIC assessment fees, compensation and benefits, and other operating expenses.
Credit Quality: A Mixed Bag
The company recorded an expense for provision for credit losses of $138 million against a benefit of $4 million in the prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 2.4 %, down from 3 % in the prior-year quarter.
Loans Rise, Deposits Decrease
As of Sep 30, 2021, deposits of Sallie Mae were $20.9 billion, down 1.1 % sequentially. Lower brokered as well as retain and other deposits contributed to the downside.
Private education loan held for investment was $20.6 billion, up 6.1% on a sequential basis. In the quarter, the company witnessed private education loan originations of $2.1 billion.
Enhanced Capital Deployment Activities
In the third quarter, the company repurchased 13 million shares of its common stock for $244 million under its share repurchase programs.
Its board of directors also approved an increase in the share buyback authorization by $250 million to the company’s 2021 share repurchase program. With this as of Oct 20, 2021, $301 million of capacity remains which will expire on Jan 26, 2023.
The company also announced a fourth-quarter dividend of 11 cents per share on its common shares. The dividend will be paid out on Dec 15 to its shareholders of record as of Dec 3, 2021. The dividend indicates a significant increase from 3 cents paid out in the previous quarter.
2021 Outlook
The company expects core earnings per share (on a GAAP basis) of $3.55-$3.60.
It anticipates total portfolio net charge-offs of $195-$205 million.
Private education loan originations are projected to grow 3-4% year over year.
The company’s non-interest expenses are expected to be $525-$530 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 30.6% due to these changes.
VGM Scores
Currently, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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Sallie Mae (SLM) Up 0.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Sallie Mae (SLM - Free Report) . Shares have added about 0.3% 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 Tops Q3 Earnings Estimates, Hikes Dividend
Sallie Mae reported third-quarter 2021 core earnings per share of 24 cents, which handily surpassed the Zacks Consensus Estimate of 17 cents. The bottom line compared unfavorably with 45 cents reported in the prior-year quarter.
Results benefited from the company’s prudent cost management and improved fee income. Private education loan originations were also strong in the quarter. The company enhanced its capital deployment plans. However, lower NII on a decline in interest income from loans posed a major undermining factor.
The company’s GAAP net income attributable to common stock was $73 million, down 57% year over year.
NII Declines, Expenses Fall
NII in the third quarter was $357.5 million, down 2% year over year.
Nonetheless, the reported figure outpaced the Zacks Consensus estimate of $342.7 million. The net interest margin expanded to 5.03% from 4.79% in the year-ago quarter.
The company’s non-interest income was $14 million, up 40% from the prior-year quarter. The rise mainly stemmed from higher other income, and gain on derivatives and hedging activities.
Sallie Mae's non-interest expenses fell 7.2% year over year to $141 million. The fall mainly resulted from lower restructuring expenses, partly offset by higher FDIC assessment fees, compensation and benefits, and other operating expenses.
Credit Quality: A Mixed Bag
The company recorded an expense for provision for credit losses of $138 million against a benefit of $4 million in the prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 2.4 %, down from 3 % in the prior-year quarter.
Loans Rise, Deposits Decrease
As of Sep 30, 2021, deposits of Sallie Mae were $20.9 billion, down 1.1 % sequentially. Lower brokered as well as retain and other deposits contributed to the downside.
Private education loan held for investment was $20.6 billion, up 6.1% on a sequential basis. In the quarter, the company witnessed private education loan originations of $2.1 billion.
Enhanced Capital Deployment Activities
In the third quarter, the company repurchased 13 million shares of its common stock for $244 million under its share repurchase programs.
Its board of directors also approved an increase in the share buyback authorization by $250 million to the company’s 2021 share repurchase program. With this as of Oct 20, 2021, $301 million of capacity remains which will expire on Jan 26, 2023.
The company also announced a fourth-quarter dividend of 11 cents per share on its common shares. The dividend will be paid out on Dec 15 to its shareholders of record as of Dec 3, 2021. The dividend indicates a significant increase from 3 cents paid out in the previous quarter.
2021 Outlook
The company expects core earnings per share (on a GAAP basis) of $3.55-$3.60.
It anticipates total portfolio net charge-offs of $195-$205 million.
Private education loan originations are projected to grow 3-4% year over year.
The company’s non-interest expenses are expected to be $525-$530 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 30.6% due to these changes.
VGM Scores
Currently, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 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 #3 (Hold). We expect an in-line return from the stock in the next few months.