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Why Is Sallie Mae (SLM) Up 6.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Sallie Mae (SLM - Free Report) . Shares have added about 6.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Sallie Mae Q3 Earnings Miss, NII Beat

Sallie Mae's third-quarter core earnings per share of 29 cents lagged the Zacks Consensus Estimate of 47 cents. The bottom line indicates a rise of 20.8% from the prior quarter. Core earnings per share exclude mark-to-fair value unrealized gains and losses on derivative contracts.

Sallie Mae completed $1 billion of private education loan sales in the third quarter, resulting in a $75-million gain. Moreover, the results were supported by higher NII and fee income. However, a rise in expenses and provision for credit losses affected bottom-line growth.

The company plans to dispose of its credit card business to recycle resources in its core business strategies. Meanwhile, it will process completed credit card applications received by 2022 end. As of the third-quarter end, SLM had $29 million of credit card loans held for sale.

The company’s GAAP net income attributable to common stock was $72.6 million, up 1.3% from the previous-year quarter.

NII Improves, Expenses Climb

NII in the third quarter was $369.5 million, up 3.4% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $359 million.

The net interest margin (NIM) expanded to 5.27% from 5.03% in the year-ago quarter.

The company’s non-interest income was $95.1 million, significantly up from the prior-year quarter’s $13.9 million. The rise mainly stemmed from net gains on sales of loans.

Sallie Mae's non-interest expenses increased 8.2% year over year to $152.3 million. The increase mainly resulted from higher other operating expenses.

Credit Quality Deteriorates

The company recorded a provision for credit losses of $207.6 million, up from the prior-year quarter’s $138.4 million. Net charge-offs were $100.2 million, significantly up from the prior-year quarter’s $48.9 million.

Balance Sheet Position Robust

As of Sep 30, 2022, deposits of Sallie Mae were $21.27 billion, up 6.5% sequentially.

Private education loan held for investment was $18.98 billion, up 2.5% on a sequential basis. In the quarter, the company witnessed private education loan originations of $2.4 billion, increasing 13% from the year-ago quarter.

Capital Deployment Activities

In the third quarter, the company repurchased 1 million common stocks for $17 million under its share repurchase program.

2022 Outlook

The company expects core earnings per share (on a non-GAAP basis) of $2.50-$2.60.

It anticipates total loan portfolio net charge-offs of $325-$345 million.

Private education loan originations are projected to grow 9-11% year over year.

The company’s non-interest expenses are expected to be $555-$565 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 19.4% due to these changes.

VGM Scores

At this time, Sallie Mae has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front 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 B. 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.

Performance of an Industry Player

Sallie Mae belongs to the Zacks Financial - Consumer Loans industry. Another stock from the same industry, Navient (NAVI - Free Report) , has gained 10.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Navient reported revenues of $247 million in the last reported quarter, representing a year-over-year change of -17.4%. EPS of $0.75 for the same period compares with $0.89 a year ago.

Navient is expected to post earnings of $0.82 per share for the current quarter, representing a year-over-year change of +290.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.8%.

Navient has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.


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