We are upgrading our recommendation on the shares of SLM Corporation, or Sallie Mae (SLM) to Outperform. The company’s third quarter earnings were well ahead of the Zacks Consensus Estimate, driven by an increase in loan originations and improvements in the credit markets.
However, loan loss provisions were high. The company’s leading position in the student lending market and its sturdy cost structure provides it an edge over its peers, given the expected growth rate of the college-age population. Its business is less prone to interest rate volatility than many other financial institutions.
However, in the near future, the company could face uncertainty over the enactment of the legislation concerning eliminating private lenders from the student loan market. Additionally, the stressed economic conditions and credit market challenges are expected to be a drag on earnings. Zacks Investment Research
