IIt’s been about a month since the last Sallie Mae (SLM) earnings report. Stocks lost around 4.5% over that time frame, underperforming the S&P 500.
Will the recent negative trend continue until its next results release, or is Sallie Mae due to a breakout? Before we dive into how investors and analysts have reacted in recent times, let’s take a look at the latest earnings report to get a better understanding of the important factors.
Sallie Mae tops second quarter earnings estimates, rising outlook for 21
Sallie Mae reported earnings per share of 45 cents in the second quarter of 2021, which significantly exceeded Zacks’ consensus estimate of 39 cents. The net result compares favorably with a loss of 22 cents recorded in the quarter of the previous year.
Results benefited from the prudent management of company costs and improved fee income. The benefit of loan losses was another tailwind. However, the fall in the NII on a fall in the average outstanding loan was a major undermining factor.
The company’s GAAP net income attributable to common shares was $ 139 million compared to a GAAP net loss of $ 88 million a year ago.
NII declines, spending plummets
The second-quarter NII was $ 338.8 million, down 2.9% year-over-year. The decrease is attributable to the sale of private education portfolios and personal loans in previous quarters. He was also behind the Zacks Consensus estimate of $ 342.6 million.
The net interest margin increased to 4.7% from 4.55% in the previous year quarter.
The company’s non-interest income was $ 52 million, up 79% from the prior year quarter. The increase is mainly due to the increase in other income and gains on loan disposals.
Sallie Mae’s non-interest expense fell 10% year-on-year to $ 128 million. The decrease was primarily due to lower FDIC evaluation costs, compensation and benefits, and other operating expenses, partially offset by higher restructuring charges.
Credit quality improves
The company recorded an allowance for loan losses of $ 70 million, significantly lower than the $ 352 million in the prior year quarter. Defaults as a percentage of private education loans in repayment were 2.1%, compared to 2.2%.
Decrease in loans and deposits
As of June 30, 2021, Sallie Mae’s deposits were $ 21.1 billion, down 7.4% sequentially. The decline in traded deposits contributed to the decline.
Private education loans held for investment (96% of total loans) stood at $ 19.4 billion, down 1.2% on a sequential basis. During the quarter, the company recorded $ 533 million in private education loan arrangements.
Fixed asset deployment activities
In the second quarter, the company repurchased 23 million common shares for $ 439 million as part of its share repurchase programs.
With that, as of June 30, it had $ 295 million of remaining capacity under the $ 1.25 billion initial authorization program, which will expire on January 26, 2023.
The company raised its projected earnings per share (on a GAAP basis) to $ 3.15- $ 3.25, from $ 2.95 to $ 3.15 previously mentioned.
The net interest margin is projected at 4.75% due to the expectation of continued margin expansion in the second half of the year.
Total net portfolio write-offs of $ 215-225 million are forecast for 2021, down from the previously mentioned $ 260-280 million.
Private education loan issuance is expected to increase 6-7% year over year. The company’s non-interest expense is expected to be in the range of $ 525 million to $ 535 million.
How have the estimates evolved since?
It turns out that revised estimates have trended upward over the past month. The consensus estimate has changed by -5.26% due to these changes.
Right now, Sallie Mae has a low growth score of F, but her Momentum score is doing a bit better with a D. Tracing a somewhat similar path, the title received a C rating on the side of the value, which places it in the average 20% for this investment strategy.
Overall, the stock has an overall VGM score of F. If you’re not strategy-focused, this score is the one you should be interested in.
Estimates have broadly trended upward for the stock, and the magnitude of these revisions indicates a downward trend. Notably, Sallie Mae has a Zacks Rank # 3 (Hold). We expect the stock to come back online in the coming months.
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