On Apr 8, 2013, we reiterated our Neutral recommendation on
), also known as Sallie Mae. The decision is based on its higher
debt repurchase gains. However, decreased net interest income and
increased operating expenses were the downsides.
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Sallie Mae's fourth-quarter earnings of 55 cents per share were
ahead of the Zacks Consensus Estimate and surpassed the
prior-quarter earnings by 8%. Earnings were aided by higher debt
repurchase gains. However, decreased net interest income,
elevated operating expenses and higher loan loss provision were
Over the last 60 days, the Zacks Consensus Estimate for 2013
increased 2%, whereas for 2014 it inched up only 1%. As a result,
Sallie Mae carries a Zacks Rank #3 (Hold).
Moreover, Sallie Mae's leading market position coupled with a
major chunk of market share is a growth driver. Further, the
company's operations are more dependent on students' demand for
educational loans, which is expected to be fairly strong in the
foreseeable future. Further, the company's business shift toward
private student loans and direct channel loans and cost reduction
measures in order to counter the legislative impact are positives
for the stock. Extensive capital deployment activities also
continue to reinforce investors' confidence in the stock.
However, the scope and profitability of Sallie Mae's businesses
are exposed to risks arising from legislative and administrative
actions. Further, we remain concerned about the run-off of its
FFELP loan portfolio, which would pressurize the interest income
of Sallie Mae. In addition, the rating downgrades and a
deteriorating credit quality are negatives for the stock.
Other Stocks Worth Considering
Other financial institutions that are performing better than
Sallie Mae include
Flagstar Bancorp Inc.
First Defiance Financial Corp.
). All these stocks carry a Zacks Rank #1 (Strong Buy).