On Sep 26, 2014, we issued an updated research report on Sallie Mae (SLM). This Delaware based financial institution is making efforts to grow independently following the split of SLM Corporation into two distinct publicly-traded entities on Apr 30, 2014.
Following the spin-off, Sallie Mae is primarily focusing on the growing consumer banking business offering private education loans, saving and insurance products for higher education. We believe the gradual economic recovery and declining unemployment rate should further enhance the prospects of the consumer banking business.
Further, clearing all skepticism, Sallie Mae outpaced the Zacks Consensus Estimate in its standalone financials for second-quarter 2014. Results reflected increased net interest income, a strong capital position and improved balance in the private education loan portfolio.
The company also provided an outlook for 2014. For full-year 2014, Sallie Mae expects core earnings per share in the range of 0.41–0.43 cents, while operating expenses are expected to be $312 million, including restructuring expenses of $32 million.
Private education loan originations are projected to be $4 billion for the year. For the later part of 2014, the company expects private education loan sales of $1.2 billion and provision for private education loan losses of around $60 million.
The company’s source of funding for its private education loan originations are term and liquid brokered and retail deposits raised by the bank. Going forward, the company expects additional funding, liquidity and revenue through sale or securitization of loan assets, which it originates as well as the servicing of the loan assets that are sold to third parties.
Notably, in Aug 2014 Sallie Mae announced that it has completed its first asset-backed securitization as a standalone consumer banking business and entered into a deal for its first loan sale.
Nevertheless, we remain cautious owing to several issues that the new entity is encountering. These include a competitive environment in the saturated banking space, absence of large scale benefits and the prevailing stringent regulatory landscape.
Over the past 30 days, the Zacks Consensus Estimate remained stable at 45 cents per share for 2014. Also for 2015, it remained stable at 63 cents per share.
Capital One Financial Corporation (COF), Discover Financial Services (DFS) and Santander Consumer USA Holdings Inc. (SC) are among the stocks worth considering in the finance sector.
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