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Why Is Sallie Mae (SLM) Down 4.1% 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 lost about 4.1% 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 catalysts.
Sallie Mae Q3 Earnings Match Estimates, Expenses Rise
Sallie Mae reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from the prior-year quarter.
Increase in net interest income, aided by rising rates, was a tailwind. The private education loan portfolio and deposits grew considerably. However, these positives were offset by elevated expenses and higher provisions. Further, non-interest loss was another major downside.
The company’s GAAP net income attributable to common stock came in at $99.8 million or 23 cents per share compared with $73.3 million or 17 cents per share reported in the year-ago quarter.
Rise in Net Interest Income Offset by Other Losses & High Costs
Net interest income for the third quarter came in at $356.6 million, up 26.4% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 15 basis points (bps) to 6%.
The company reported non-interest loss of $85.7 million compared with $6.1 million in the prior-year quarter. This downside stemmed from losses on derivatives and hedging activities, along with lower other income.
The company’s non-interest expenses flared up 29.6% year over year to $150.7 million. The upsurge mainly resulted from increased compensation and benefits expenses, elevated FDIC assessment fees and other expenses. Efficiency ratio, on a non-GAAP basis, increased to 54.7% from 40.6% in the year-ago period. Generally, a higher ratio indicates fall in profitability.
Credit Quality: A Mixed Bag
Provision for loan losses was $70 million, up 27.5% from $54.9 million witnessed in prior-year quarter.
However, delinquencies as a percentage of private education loans in repayment were 2.3%, down 3 bps from the year-ago quarter.
Growth in Deposit and Loans
As of Sep 30, 2018, deposits of Sallie Mae Bank were $17.9 billion, up from $15 billion as of Sep 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Sep 30, 2018, the private education loan portfolio was $20 billion, up 18.1% year over year. Loan origination climbed 12% to $2.1 billion in the reported quarter. Average yield on the loan portfolio was 9.16% up 66 bps.
Strong Capital Position
As of Sep 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 11.5%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company raised guidance for core earnings per share to $1.02-$1.03 for this year compared with 99 cents to $1.01 it had expected during the second quarter.
Private education loan originations are projected to be $5.2 billion, up from $5 billion estimated previously.
The company kept its full-year non-GAAP operating efficiency ratio guidance stable at 38-39%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, 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 C. 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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Why Is Sallie Mae (SLM) Down 4.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Sallie Mae (SLM - Free Report) . Shares have lost about 4.1% 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 catalysts.
Sallie Mae Q3 Earnings Match Estimates, Expenses Rise
Sallie Mae reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from the prior-year quarter.
Increase in net interest income, aided by rising rates, was a tailwind. The private education loan portfolio and deposits grew considerably. However, these positives were offset by elevated expenses and higher provisions. Further, non-interest loss was another major downside.
The company’s GAAP net income attributable to common stock came in at $99.8 million or 23 cents per share compared with $73.3 million or 17 cents per share reported in the year-ago quarter.
Rise in Net Interest Income Offset by Other Losses & High Costs
Net interest income for the third quarter came in at $356.6 million, up 26.4% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 15 basis points (bps) to 6%.
The company reported non-interest loss of $85.7 million compared with $6.1 million in the prior-year quarter. This downside stemmed from losses on derivatives and hedging activities, along with lower other income.
The company’s non-interest expenses flared up 29.6% year over year to $150.7 million. The upsurge mainly resulted from increased compensation and benefits expenses, elevated FDIC assessment fees and other expenses.
Efficiency ratio, on a non-GAAP basis, increased to 54.7% from 40.6% in the year-ago period. Generally, a higher ratio indicates fall in profitability.
Credit Quality: A Mixed Bag
Provision for loan losses was $70 million, up 27.5% from $54.9 million witnessed in prior-year quarter.
However, delinquencies as a percentage of private education loans in repayment were 2.3%, down 3 bps from the year-ago quarter.
Growth in Deposit and Loans
As of Sep 30, 2018, deposits of Sallie Mae Bank were $17.9 billion, up from $15 billion as of Sep 30, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Sep 30, 2018, the private education loan portfolio was $20 billion, up 18.1% year over year. Loan origination climbed 12% to $2.1 billion in the reported quarter. Average yield on the loan portfolio was 9.16% up 66 bps.
Strong Capital Position
As of Sep 30, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 11.5%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2018 Outlook
The company raised guidance for core earnings per share to $1.02-$1.03 for this year compared with 99 cents to $1.01 it had expected during the second quarter.
Private education loan originations are projected to be $5.2 billion, up from $5 billion estimated previously.
The company kept its full-year non-GAAP operating efficiency ratio guidance stable at 38-39%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Sallie Mae has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, 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 C. 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.