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Rising Expenses, Concentration Risks to Hurt Sallie Mae (SLM)

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On Jun 4, we issued an updated research report on SLM Corporation (SLM - Free Report) . The company’s rising non-interest expenses and a significant exposure to brokered deposits are concerns.

The Zacks Consensus Estimate for Sallie Mae’s current-year earnings moved 33% downward over the past 60 days. The company currently carries a Zacks Rank #5 (Strong Sell).

Its price performance does not seem encouraging as well. The company’s shares have lost 12.7% over the past 12 months compared with the industry's decline of 15.6%.

 

Sallie Mae’s escalating non-interest expenses over the last three years is a major headwind. The same witnessed a CAGR of 6.3% in the last three years (2017-2019) due to rise in almost all the components. The trend continued in the first three months of 2020 as well. Also, the bank’s investment in technology and efforts to roll out new products are likely to keep expenses elevated.

Currently, the company’s source of funding for its Private Education Loan originations are term and liquid brokered, along with the retail deposits raised by the bank. However, such funding poses refinancing risks, as the average term of the deposits is shorter than the expected term of the education loans originated Sallie Mae. Further, concentration risk arises from the company’s overdependence on brokered deposits (more than 56% of total deposits as of Mar 31, 2020) as a major source of funding.

Nevertheless, Sallie Mae remains focused on enhancing its Private Education Loan assets and revenues, maintaining a strong capital position and introducing multiple complementary products. Notably, originations increased 8%, 4%, 10.7% and 5.8%, on year-over-year basis in 2016, 2017, 2018 and 2019, respectively, with the trend continuing in first-quarter 2020.

Stocks to Consider

Encore Capital Group, Inc. (ECPG - Free Report) has witnessed an upward earnings estimate revision of 5.4% for the ongoing year in the past 60 days. This Zacks #2 Ranked (Buy) stock has appreciated 5.4%, so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mid Penn Bancorp, Inc.’s (MPB - Free Report) Zacks Consensus Estimate for the current-year earnings moved 42% north over the past two months. The stock currently carries a Zacks Rank of 2.

Camden National Corporation’s (CAC - Free Report) Zacks Consensus Estimate for 2020 earnings moved 9.5% upward over the past 60 days. The stock currently holds a Zacks Rank of 2.

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