What's Going On With Sallie Mae Stock Wednesday?

BY Benzinga | AGENCY | 09/25/24 03:30 PM EDT

Sallie Mae Corporation stock is trading higher on Wednesday. Bank of America Corporation (BAC) initiated coverage of the student loan provider with a Buy rating and set a price target of $27.

The Details: Sallie Mae currently holds a 58% market share in private student loans, however, the bank indicates there’s room for growth, describing the lender as “poised for market share gains.”

Bank of America (BAC) points to growth in college enrollment, increase in the price of college and competitors leaving the student loan market to support its market share growth belief. Specifically, the bank stated that college enrollment is estimated to grow by about 4% by 2027 and the cost of college has increased at a 3% compound annual growth rate since 1993-94.

The bank pointed to the past as evidence of Sallie Mae’s ability to take advantage of competitors exit from the market. For instance, the lender increased its market share by 60pbs during the 2021-22 school year following Wells Fargo’s exit.

Also, the bank highlighted the lender’s focus on high credit-quality consumers. It stated that less than 8% of borrowers at the time of originations had a credit score lower than 670. Next, the note recognized the lender’s efficient business model.

“Sallie Mae began a strategy in 2020 in which it seeks to minimize balance sheet growth and accelerate share repurchases
by selling student loans at high execution levels due to its strong credit profile. Through the “loan sale arbitrage” strategy, SLM has driven attractive returns, while not needing to expand capital levels to sustain its industry leading origination volumes,” said the bank.

Bank of America (BAC) also recognized some risks to its thesis including, scrutiny by oversight organizations like the Consumer Financial Protection Bureau and a growing number of students choosing to consolidate or refinance with firms that offer interest rates lower than Sallie Mae’s.

Related Link: Putin Ally Who Unveiled Tesla Cybertruck With Machine Gun Last Month Now Says Elon Musk ‘Remotely Disabled’ The Militarized EV

SLM Price Action: At the time of writing, Sallie Mae shares are trading 1.90% higher at $21.94, according to data from Benzinga Pro.

Image: Photo via Shutterstock

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article