Balanced View on Sallie Mae - Analyst Blog

On Mar 28, 2014, we issued an updated research report on SLM Corporation SLM. Though the company (also known as Sallie Mae) missed the Zacks Consensus Estimate for fourth-quarter 2013 core earnings per share, we believe that its leading position in the student lending market, diversifying efforts and increasing private student loan originations will help it to navigate well through the current sluggish growth cycle.

On Jan 16, Sallie Mae's fourth-quarter 2013 core earnings came in at 61 cents per share, lagging the Zacks Consensus Estimate by 14.8%. However, results compared favorably with the year-ago quarter earnings of 55 cents.

Sallie Mae's performance in 2013 was decent as evident from its earnings history. Though the company missed earnings in the final quarter of 2013, it delivered positive earning surprises in the remaining 3 quarters of 2013.

Additionally, we remain encouraged owing to Sallie Mae's decision to split the company's present business into 2 distinct publicly traded companies – education loan management business and consumer banking business. Further, the company has undertaken consistent efforts to reduce costs and improve operating efficiencies. Notably, after certain adjustments, operating expenses were below $1 billion in 2013.

We believe Sallie Mae has the potential to capitalize on its strong fundamentals going forward. However, we remain cautious owing to declining interest income, absence of credible improvement in the asset quality and the stringent regulatory landscape that may pose threats to the company's financials in the near term.

Over the past 60 days, the Zacks Consensus Estimate for 2014 and 2015 remained stable at $2.36 per share and $ 2.51 per share, respectively.

Sallie Mae currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Other stocks in the finance sector worth considering include Meridian Interstate Bancorp, Inc. EBSB, Credit Acceptance Corp. CACC and Tree.Com, Inc. TREE. Meridian Interstate carries a Zacks Rank #1 (Strong Buy) while both Credit Acceptance and Tree.Com hold a Zacks Rank #2 (Buy).