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Sallie Mae (SLM) Struggles With Rising Costs: Time to Sell?

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On Aug 23, we issued an updated research report on Sallie Mae (SLM - Free Report) . The company’s profitability continues to be curbed by escalating expenses. Also, it faces concentration risk due to over dependence on broker deposits as a key source of funding.  

The student lender reported in-line earnings in second-quarter 2017. The results reflected higher net interest income along with improved loans and deposit balance. However, higher expenses and lower non-interest income were on the downside.

Sallie Mae shares have lost 6.4% year to date compared with the industry’s decline of 6.2%.

Further, the Zacks Consensus Estimate for the company’s current-year earnings have been revised 1.4% downward over the past 60 days. As a result, the stock carries a Zacks Rank #4 (Sell).

Sallie Mae’s expenses have witnessed a compound annual growth rate of 12.1% over a period of five years (ended 2016).

The company remains dependent on the broker deposits as a major source of financing. Moreover, the generation of deposits from non-brokered channels would be requiring some time. Thus, this significant exposure to a source of funding remains a concern.

Nevertheless, the loan originations have increased 8% in 2016, with the trend continuing in the first six months of 2017. Thus, the company seems on track to achieve originations of about $4.9 billion in 2017. Also, management expects to improve efficiency ratio through prudent expense management and growth in service portfolio loans.

Better-Ranked Stocks

Some better-ranked stocks in the finance space are JPMorgan Chase & Co. (JPM - Free Report) , State Street Corporation (STT - Free Report) and Carolina Financial Corporation (CARO - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

JPMorgan’s Zacks Consensus Estimate for current-year earnings have been revised 2.9% upward in the last 60 days. The company’s share price has increased almost 38.8% in a year.

State Street has witnessed its Zacks Consensus Estimate for the current-year earnings revising 3.9% upward, over the last 60 days. Also, its shares have gained 35.4% in a year’s time.

Carolina Financial has witnessed an upward Zacks Consensus Estimate revision of 8.9% for the current year, over the last 60 days. Its share price has increased 55.5% in the past year.

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