SLM Corp (SLM) Up 8.8% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for SLM CorporationSLM . Shares have added about 8.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sallie Mae Q4 Earnings in Line; 2017 View Upbeat

Sallie Mae's fourth-quarter 2016 core earnings of $0.15 per share were in line with the Zacks Consensus Estimate. Compared to the prior-year quarter, the bottom line declined 25%.

Results reflected increased net interest income. Continued rise in private education loan originations was a tailwind. However, these positives were offset by lower non-interest income, higher expenses and a significant rise in provisions.

Sallie Mae reported core earnings (primarily adjusting for derivatives), attributable to the company's common stock, of $67 million, down 21% from the year-ago quarter.

For 2016, the company reported core earnings attributable to common stock of $231 million or $0.53 per share, down from $254 million or $0.59 per share for 2015.

Net Interest Income Growth Overshadowed by Higher Expenses

Net interest income for fourth-quarter 2016 was $245 million, up 31% year over year. The rise was mainly driven by an increase in the portfolio size of private education loans. Net interest margin expanded 7 basis points (bps) year over year to 5.55%.

Non-interest income came in at $9.4 million, reflecting a significant decrease from $72 million in the prior-year quarter, primarily reflecting substantial decline in gains on sales of loans as well as losses on derivatives and hedging activities recorded in the reported quarter.

The company's total expenses were up 16% year over year to $98 million. The rise in expenses was mainly due to increased compensation and benefits expenses, higher FDIC assessment fees and other expenses as well.

Efficiency ratio, on a non-GAAP basis, declined to 38.6% in the quarter, from 42.5% in the year-ago quarter. Generally, a lower ratio indicates improved efficiency.

Provision for loan losses was $43.2 million, up 42% year over year.

As of Dec 31, 2016, the private education loan portfolio was $14.1 billion, up 34% year over year. Notably, loan origination climbed 6% year over year to $608 million in the reported quarter.

Average yield on the loan portfolio was 8.08%, up 24 bps year over year. Delinquencies as a percentage of private education loans in repayment were 2.1%, down from 2.2 %.

Deposits Rise

As of Dec 31, 2016, deposits of Sallie Mae Bank were $13.4 billion, up from $11.5 billion as of Dec 31, 2015. Increases in retail and other deposits contributed to the rise in deposits.

Strong Capital Position

As of Dec 31, 2016, Sallie Mae Bank's Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both at 12.6%. Capital ratios exceeded the "well capitalized" industry benchmark in regulatory requirements.

2017 Outlook

Sallie Mae provided guidance for 2017. The company estimates core earnings per share in the range of $0.67-$0.69 for this year. Operating efficiency ratio on a non-GAAP basis is expected in the range of 38-39%. Private education loan originations are projected to be $4.9 billion for the year.

Other Development

Concurrently, a lawsuit has been filed by the Illinois Attorney General Lisa Madigan against Sallie Mae Bank and Navient Corporation and its subsidiaries stemming from multi-state investigation of various lending, servicing, and collection practices. In response to this, Sallie Mae noted that "Navient has accepted responsibility for all costs, expenses, losses and remediation arising from this matter."

How Have Estimates Been Moving Since Then?

Following the release , investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter.

SLM Corporation Price and Consensus

SLM Corporation Price and Consensus | SLM Corporation Quote

VGM Scores

At this time, SLM Corporation's stock has a poor Growth Score of 'F', however its momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.


Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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

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

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