Sallie Mae SLM appears to be a solid bet as it remains focused on growing consumers’ banking businesses. Also, a decline in the unemployment rate is anticipated to drive the stock. Further, its solid earnings growth projections encourage us.
The Finance sector was one of the best performers in the fourth-quarter reporting cycle. So, we thought of picking a stock from the sector that reflects robust fundamentals and solid long-term growth opportunities.
Sallie Mae has been witnessing upward earnings estimate revisions, reflecting analysts’ optimism about its prospects. Over the last 60 days, the Zacks Consensus Estimate for 2020 and 2021 increased 38% and 29%, respectively.
Further, the Zacks Rank #1 (Strong Buy) company has gained 3% over the past six months against a 21.9% decline recorded by the industry.
Notably, Sallie Mae has several other aspects that make it an attractive investment option.
6 Reasons Why Sallie Mae is a Must Buy
Focused Approach: The company intends to improve its private education loan assets and revenues, while maintaining a strong capital position and introducing multiple complementary products. Moreover, it expects an improvement in the efficiency ratio as a result of expense-management initiatives. Further, the company remains on track to achieve targeted private education loan origination growth of 6% for 2020.
Growth Prospects: Sallie Mae’s student loan portfolio is likely to benefit from the improving trends of enrollment and increasing tuition costs, leading to higher demand for education loans over the next few years.
Revenue Growth: Organic growth remains a key strength at Sallie Mae, as depicted in its revenue growth story. Over the last five years (ended 2019), net interest income witnessed a CAGR of 19.1%. The company’s efforts to increase loan balance will likely support top-line growth.
Earnings per Share (EPS) Strength: Sallie Mae’s long-term (three-five years) estimated EPS growth rate of 11% promises rewards for investors over the long run. Furthermore, the company’s projected earnings growth (F1/F0) of 47.9% (compared with the industry average of 6.2%) indicates constant upward momentum in earnings.
Superior Return on Equity (ROE): Sallie Mae’s ROE of 20.3% compared with the industry average of 16.8%, highlights the company’s commendable position over its peers.
Undervalued Stock: The company currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Other Stocks to Consider
Northrim BanCorp Inc NRIM has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has gained more than 4% in the past three years. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Encore Capital Group Inc. ECPG has been witnessing upward estimate revisions for the past 60 days. Also, the company’s shares have risen nearly 22% over the past three years. It presently has a Zacks Rank #2.
Citizens Financial Services Inc. CZFS, another Zacks #1 Ranked stock, has been witnessing upward estimate revisions for the past 60 days. In the past three years, the company’s share price has risen more than 25%.
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