On Jul 4, 2013, we reiterated our Neutral recommendation on
Sallie Mae, Inc.
). The decision was based on the proposed split of the company,
which is anticipated to help Sallie Mae navigate through the
tough regulatory environment. However, reduced net interest
income and higher operating expenses were the downsides.
Sallie Mae's first-quarter earnings of 61 cents per share
marginally beat the Zacks Consensus Estimate and surpassed the
prior-quarter figure by 11%. Over the last 60 days, the Zacks
Consensus Estimate for 2013 increased 1% to $2.49, whereas for
2014, it dropped 0.4%. As a result, Sallie Mae currently carries
a Zacks Rank #3 (Hold).
To boost the company's long-term growth in the present economic
environment, Sallie Mae announced the decision to split the
company's present business into 2 parts, namely an education loan
management business and a consumer banking business.
We expect the company to benefit from this, as with the
division, management's focus will be on Sallie Mae's growing
consumer banking business and on tackling its education loan
portfolios. Together, these are expected to aid bottom-line
growth in the near term.
CAPITAL ONE FIN (COF): Free Stock Analysis
DISCOVER FIN SV (DFS): Free Stock Analysis
REGIONAL MANAGE (RM): Free Stock Analysis
SLM CORP (SLM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Moreover, the company's business shift toward private student
loans and direct channel loans as well as cost reduction measures
- 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 the
company's FFELP loan portfolio, which will weigh further on
interest income. In addition, the deteriorating credit quality is
a negative for the stock.
Other Stocks Worth Considering
Other financial institutions that are performing better than
Sallie Mae include
Capital One Financial Corp.
Discover Financial Services
Regional Management Corp.
). All these stocks carry a Zacks Rank #2 (Buy).