Will Post-Split Sallie Mae (SLM) Miss Q2 Earnings Estimates? - Analyst Blog

Sallie Mae (SLM) is scheduled to report its second-quarter 2014 results on Jul 23, after market close.

Following the separation of SLM Corporation into two distinct publicly-traded entities on Apr 30, 2014, Sallie Mae started operating independently as a consumer-banking company focused on offering private education loans, saving and insurance products for higher education to students and families. The loan management, servicing and asset recovery businesses of SLM Corporation remained with the other public company – Navient Corporation.

Prior to split, SLM Corporation's first-quarter core earnings were 51 cents per share, falling short of the Zacks Consensus Estimate by a nickel.

Following the strategic split, Sallie Mae is set to report its standalone Q2 financials. Will the company miss earnings estimates? Let's see how things have shaped up for this announcement.

Factors to Influence Q2 Results

A prolonged low interest rate environment may create pressure on net interest margin for private education loans. Also, due to the split, the size of the balance sheet has reduced significantly, so there will be absence of the large scale benefits.

However, Sallie Mae's specialized focus on solidifying its presence in the consumer banking business space will be advantageous to the company. The economic recovery and declining unemployment rate should further enhance the prospects of consumer banking. We are not sure whether these factors will be reflected on the company's second-quarter results, but the new company should capitalize on these grounds.

Activities of Sallie Mae during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 9 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Sallie Mae is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for Sallie Mae is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 9 cents per share.

Zacks Rank: Sallie Mae's Zacks Rank #4 (Sell) further lowers the predictive power of ESP.  We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement.

Stocks That Warrant a Look

Here are some other stocks in the finance sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Popular, Inc. (BPOP) has an earnings ESP of +10.29% and carries a Zacks Rank #3. It is expected to report its second-quarter results on Jul 24.

T. Rowe Price Group, Inc. (TROW) has an earnings ESP of +0.90% and holds a Zacks Rank #2. It is scheduled to report its second-quarter results on Jul 24.

Hancock Holding Co. (HBHC) has an earnings ESP of +1.70% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 24.
 

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