We are upgrading our recommendation on the shares of SLM Corporation (SLM) to Outperform. We believe that the stock price has significant upside potential owing to its leading position in the student lending market, expense curtailment initiatives and federal student loan assets acquisition. Dividend reinstatement and share buyback efforts also inspire investor confidence on the stock.
The company's first quarter 2011 core earnings came in ahead of the Zacks Consensus Estimate, primarily driven by a decrease in loan loss provisions and improved net interest income.
While pausing new federal student loan origination to comply with the legislation would affect revenue generation, we think that its diversifying efforts and a recovery of the economy, though at a sluggish rate, would help bolster its earnings by growing its private education loan business and reducing its loan loss provision expenses.
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