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Loan Originations Support Sallie Mae (SLM) Amid Higher Costs

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On Apr 7, we issued an updated research report on Sallie Mae (SLM - Free Report) . The company’s focus on strengthening its Private Education Loan assets and revenues along with maintaining a strong capital position bodes well for the long term. However, escalating expenses remain a headwind. Further, Sallie Mae faces concentration risks due to the overdependence on brokered deposits.

The Zacks Consensus Estimate for the company’s current-year earnings has been unchanged at $1.88 over the past 30 days. As a result, the stock currently carries a Zacks Rank #3 (Hold).

Shares of Sallie Mae have lost 18% over the past six months compared with the industry’s decline of 42.5%.

 

 


The company remains focused on enhancing its private education loan portfolio. In 2019, it was successful in achieving 5.8% year-over-year growth. Further, it expects to deliver originations of about $6 billion in 2020. Also, management expects to improve efficiency ratio through growth in service portfolio loans.

Further, the company’s net interest income has been growing with rising amount of cash and cash equivalents held to gain from yields on cash and other short-term investments. Also, rising average loan balance has supported Sallie Mae in witnessing a CAGR of 19.1% over the last five years (ended 2019).

Modest growth in the demand for educational loans comes as a tailwind for the lender. Moreover, with the economic recovery, Sallie Mae should be able to maintain a leading position in the student lending market.

However, the company’s expenses have witnessed a compound annual growth rate of 6.3% over five years (ended 2019). Its investment in technology and efforts to introduce products are likely to keep expenses elevated.

Also, the company faces concentration risks due to overdependence on brokered deposits (more than 57% of total deposits as of Dec 31, 2019) as a major source of funding. It needs to generate deposits from non-brokered channels to ease the matter, which might take some time.

Key Picks From the Sector

Meridian Bancorp, Inc. (EBSB - Free Report) has witnessed upward earnings estimate revisions for 2020 over the past 60 days. Also, this Zacks #1 Ranked (Strong Buy) stock has plunged 43.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waterstone Financial, Inc.’s (WSBF - Free Report) ongoing-year earnings estimate moved up in the past 60 days. Further, the company’s shares have declined 20.9% over the past six months. At present, it carries a Zacks Rank of 2 (Buy).

Evercore Inc’s (EVR - Free Report) current-year earnings estimate moved north in 60 days.  Additionally, the stock has depreciated 28.4% over the past six months. It currently carries a Zacks Rank #2.

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