Sallie Mae At Work On Second-Stage Base


Sallie Mae, orSLM Corp. ( SLM ) as it is formally known, is working on a stage-two base.

As a stock advances, it pauses to consolidate. Research shows that breakouts from the first or second bases are more likely to work than later-stage patterns.

The current cup-with-handle pattern is 16% deep but would be much shallower if not for a wild day in late May. The stock gapped up May 29 in heavy volume. The stock price rose 14% but reversed to close with a 2% gain. News that the company would split into two publicly traded entities drove the action.

One company will service federal student loans. The second company will focus on private loans.

SLM expects to complete the split in the first half of 2014.

Sallie Mae was created in 1972 as a government-sponsored entity. The company was privatized in steps from 1997 to the final phase in 2004. Sallie no longer has any legal ties to the federal government.

Earnings per share increased 92% in the second quarter -- the fastest growth since late 2009. Revenue popped 15%. After-tax margin rose to 23%, the highest since late 2010.

The percentage of loans written off was 2.7%, an improvement from 3.1% in the year-ago quarter.

Return on equity, a gauge of financial efficiency, was almost 21% last year, well above the 17% minimum associated with top stocks.

Sallie Mae suspended its quarterly dividend of 25 cents a share after the first quarter of 2007. However, the dividend was returned at 10 cents a share in mid-2011. Since then, the company has raised the payout twice.

The current quarterly payout of 15 cents is an annualized yield of 2.4%. SLM told IBD on Wednesday that the dividend policies -- when SLM splits into two companies -- will be finalized at a later date.

The buy point in the base is 25.24, but the pattern shows more distribution than accumulation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: SLM

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