It has been about a month since the last earnings report for Sallie Mae (SLM). Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sallie Mae 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 Beat Estimates, Expenses Rise
Sallie Mae reported fourth-quarter 2018 core earnings of 31 cents per share, which surpassed the Zacks Consensus Estimate of 27 cents. Moreover, the figure compares favorably with 10 cents in the prior-year quarter.
Increase in net interest income, aided by rising rates, was a tailwind. The private education loan portfolio and deposits grew considerably. Further, rise in non-interest income was another positive. However, these positives were partly offset by elevated expenses and poor credit quality.
The company’s GAAP net income attributable to common stock came in at $143.3 million or 33 cents per share compared with $43.9 million or 10 cents per share reported in the year-ago quarter.
For full-year 2018, the company reported GAAP net income of $471.8 million or $1.07 per share, up from $273.2 million or 62 cents per share.
Rise in Revenues Partially Offset by Higher Costs
Net interest income for the fourth quarter came in at $382.9 million, up 23.8% year over year. The improvement was mainly driven by higher interest income on elevated loans. Net interest margin expanded 11 basis points (bps) to 6.11%.
The company reported non-interest income of $12.7 million against loss of $22 million in the prior-year quarter. This upswing stemmed from gains on derivatives and hedging activities, along with higher other income.
The company’s non-interest expenses flared up 23% year over year to $146 million. The upsurge mainly resulted from increased compensation and benefits expenses and elevated other expenses.
Efficiency ratio, on a non-GAAP basis, came in at 37.6%, down from 41.2% in the year-ago period. Generally, a lower ratio indicates rise in profitability.
Credit Quality Deteriorates
Provision for loan losses was $57.6 million, up 4.1% from $55.3 million witnessed in prior-year quarter.
Also, delinquencies as a percentage of private education loans in repayment were 2.6%, up 2 bps.
Growth in Deposit and Loans
As of Dec 31, 2018, deposits of Sallie Mae were $18.9 billion, up from $15.5 billion as of Dec 31, 2017. Increase in retail and other, along with brokered deposits, contributed to this upside.
As of Dec 31, 2018, the private education loan portfolio was $20.3 billion, up 17.7% year over year. Loan originations climbed 16% to $733 million in the reported quarter. Average yield on the loan portfolio was 9.34% up 73 bps.
Strong Capital Position
As of Dec 31, 2018, Sallie Mae Bank’s Tier 1 capital to risk-weighted assets and common equity Tier 1 capital were both 12.1%. Capital ratios exceeded the “well capitalized” industry benchmark in regulatory requirements.
2019 Outlook
The company expects core earnings per share in the range of $1.22-$1.26 for this year.
Private education loan originations are projected to be $5.7 billion.
Management expects loan consolidations of about $1.25 billion in 2019.
The company expects full-year non-GAAP operating efficiency ratio to be between 35% and 36%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 11.11% due to these changes.
VGM Scores
Currently, Sallie Mae has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sallie Mae has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
SLM Corporation (SLM): Free Stock Analysis Report
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