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Rising Loan Originations Aid Sallie Mae Despite High Costs
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Sallie Mae’s (SLM - Free Report) growth in average loan balance has been supporting NII. Strategic inorganic growth moves will expand its operations and diversify revenue streams. Lower liquidity and rising expenses are a concern.
Shares of Sallie Mae have increased 54.8% compared with the industry growth of 43.9% in the past year. Its 2024 earnings estimate has revised upward in the past 60 days.
Image Source: Zacks Investment Research
Factors Driving Salie Mae Stock
The company is a dominant player in every phase of the student loan life cycle, providing the continuing competitive advantage of scale. The low unemployment rate for the over-25-year-old college graduate cohort and early enrollment trends indicate the strengthening of longer-term secular growth trends in the private student lending industry. Considering such expectations, SLM will likely experience modest growth in enrollment for the upcoming several quarters, leading to higher demand for education loans.
It made efforts to expand its business operations on the back of investments in varied product offerings and inorganic activities. In 2022, Sallie Mae closed the deal with Epic Research LLC to acquire a digital marketing and education solutions company, Nitro College, that boosts its outreach and brand position while bolstering its digital marketing competencies and lowering the cost of acquiring customer accounts. Such inorganic moves are likely to help it become a holistic education solutions provider for students and drive loan originations for the company.
Further, the company’s focus is on improving its NII by increasing the amount of cash and cash equivalents held to gain from yields on cash and other short-term investments. Also, the rising average loan balance has supported NII growth. The NII registered a CAGR of 5.6% over the last six years (ended 2023). Though the trend reversed in the first half of 2024, the company’s target to grow the Private Education Loan portfolio will continue to support NII growth in the quarters ahead.
What’s Hurting Sallie Mae's Growth?
Elevated expenses are a concern for Sallie Mae. The company’s non-interest expenses witnessed a CAGR of 4.2% over the last five years (2018-2023), with an uptrend continuing in the first half of 2024. Though the company focuses on lowering both servicing and acquisition costs, we believe that an increasing expense trend will hinder bottom-line growth in the upcoming quarters.
As of June 30. 2024, the company had long-term borrowings worth $5.40 billion and cash and cash equivalents of $5.26 billion. The company carries a greater debt level than its liquidity position. Hence, we believe that Sallie Mae has a higher possibility of default interest and debt repayments if the economic situation worsens.
Sallie Mae currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for NRIM’s current-year earnings has been revised 4.7% upward to $5.83 per share in the past 30 days. The company’s shares have risen 21.2% year to date.
The Zacks Consensus Estimate for BSRR’s current-year earnings has been revised 12.7% upward to $2.76 per share in the past two months. Sierra Bancorp’s shares have gained 32.7% so far this year.
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Rising Loan Originations Aid Sallie Mae Despite High Costs
Sallie Mae’s (SLM - Free Report) growth in average loan balance has been supporting NII. Strategic inorganic growth moves will expand its operations and diversify revenue streams. Lower liquidity and rising expenses are a concern.
Shares of Sallie Mae have increased 54.8% compared with the industry growth of 43.9% in the past year. Its 2024 earnings estimate has revised upward in the past 60 days.
Factors Driving Salie Mae Stock
The company is a dominant player in every phase of the student loan life cycle, providing the continuing competitive advantage of scale. The low unemployment rate for the over-25-year-old college graduate cohort and early enrollment trends indicate the strengthening of longer-term secular growth trends in the private student lending industry. Considering such expectations, SLM will likely experience modest growth in enrollment for the upcoming several quarters, leading to higher demand for education loans.
It made efforts to expand its business operations on the back of investments in varied product offerings and inorganic activities. In 2022, Sallie Mae closed the deal with Epic Research LLC to acquire a digital marketing and education solutions company, Nitro College, that boosts its outreach and brand position while bolstering its digital marketing competencies and lowering the cost of acquiring customer accounts. Such inorganic moves are likely to help it become a holistic education solutions provider for students and drive loan originations for the company.
Further, the company’s focus is on improving its NII by increasing the amount of cash and cash equivalents held to gain from yields on cash and other short-term investments. Also, the rising average loan balance has supported NII growth. The NII registered a CAGR of 5.6% over the last six years (ended 2023). Though the trend reversed in the first half of 2024, the company’s target to grow the Private Education Loan portfolio will continue to support NII growth in the quarters ahead.
What’s Hurting Sallie Mae's Growth?
Elevated expenses are a concern for Sallie Mae. The company’s non-interest expenses witnessed a CAGR of 4.2% over the last five years (2018-2023), with an uptrend continuing in the first half of 2024. Though the company focuses on lowering both servicing and acquisition costs, we believe that an increasing expense trend will hinder bottom-line growth in the upcoming quarters.
As of June 30. 2024, the company had long-term borrowings worth $5.40 billion and cash and cash equivalents of $5.26 billion. The company carries a greater debt level than its liquidity position. Hence, we believe that Sallie Mae has a higher possibility of default interest and debt repayments if the economic situation worsens.
Sallie Mae currently carries a Zacks Rank #3 (Hold).
Finance Stocks Worth a Look
Some better-ranked stocks in the banking space are Northrim BanCorp, Inc. (NRIM - Free Report) and Sierra Bancorp (BSRR - Free Report) . At present, NRIM carries a Zacks Rank #2 (Buy) and BSRR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for NRIM’s current-year earnings has been revised 4.7% upward to $5.83 per share in the past 30 days. The company’s shares have risen 21.2% year to date.
The Zacks Consensus Estimate for BSRR’s current-year earnings has been revised 12.7% upward to $2.76 per share in the past two months. Sierra Bancorp’s shares have gained 32.7% so far this year.