SLM Corporation SLM

1
SLM Corporation (SLM)

• Analyst Kendra Emery
• November 30th 2006

2
Company Profile

• SLM Corporation, provides education finance in
  the United States.
• Operates in two segments Lending and Debt
  Management Operations
• Supposedly manages largest portfolio in the
  Federal Family Education Loan Program (FFELP).
• Also provides accounts receivable management and
  collections services on consumer and mortgage
  receivable portfolios

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Strengths

• Dominant position in the industry
• Low-risk profile
• The exceptional performer status from the
  government guarantees almost 100 of its federal
  loans
• Projected 10 increase in other income in 2007,
  reflecting mostly organic growth
• Corporate Governance Quotient as of 1-Nov-06 is
  better than 94.4 of SP 500 companies and 100
  of Diversified Financials companies.
• Won the Association of Fundraising Professionals'
  Outstanding Corporation Award

4
Weaknesses

• Private loan growth adds credit risk
• Zero-fee initiative

5
Opportunities

• To strengthen its market position by acquisitions
• Purchased GRP/AG Holdings, LLC in Sept 05
• In June 2006, acquired Upromise, the largest
  administrator of direct-to-consumer
• April 2006, the company introduced a new Private
  Consolidation loan
• There is an increasing number of student loans
  being originated

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Threats

• Sallie Mae operates in a highly regulated and
  competitive industry
• Political risk likely reauthorization of the
  Higher Education Act
• The Federal Direct Loan Program
• Concentrations with preferred channel
  partnerships are vulnerable to termination

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Recent Results

• Reported 3Q06 EPS of 0.73, above 0.72 The
  Street estimate
• The core student loan spread fell 1.79,
• Had a whopping 450 rise in provisions for loan
  losses.

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Growth Criteria
SLM
No

• EPS 15 (5 year average)
• EPS 10 (Y.O.Y)
• Must have positive revenue growth
• Sales growth EPS growth
• PEG

Yes
Yes
Yes
Yes
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Value Criteria
SLM

• PEG
• Positive Earnings 4/5 past years
• P/E ratio
• Dividend Yield Industry Average
• Current Assets should be
• 2X Current Liabilities

No
Yes
Yes
Yes
Yes
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Financial Ratios
Student Loan Corp
Industry Ave
Bank of America
Key Corp.
SLM

• Net Profit Margin (ttm) 18.04 13.74
  28.62 23.82 19.26
• ROE (ttm) 42.68 31.88 16.60
  15.52 21.59
• ROA (ttm) 1.55 1.27 1.18
• Current Ratio 2.15
  .27 .063 .016
• Quick Ratio 2.15 .27
  .063 .016
• Equity Multiplier 24.75
  11.50 12.2 18.3
• Asset Turnover .082 .07
  .08 .073
• Operating Margins 66.1
  56.9 48.8 75.3

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More financial Ratios

• Shares Short (as of 10-Nov-06) 10.93M
• Short of Float (as of 10-Nov-06) 2.70
• Dividend Yield 2.21
• Compared to Industry of 1.83
• EPS of the Most Recent Quarter compared to last
  year went down 6.00
• Compared to the industrys decrease of only 5.14
• 5 year EPS growth is estimated to go up 27.09
• Industry is only predicted to go up 15.58

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Moving Averages
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Intrinsic Value and Target Prices

• Using industry P/e 3.3916.21 55.07
• Using Conservative Median P/E 64.41
• Using the Two Period Discount Dividend model
• 67.00
• Using the Three Period Discount Dividend model
  134.04

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Other Intrinsic/ Target Prices

• SPs Fair Value Calculation 60.10
• MorningStars Fair Value Calculation 57.00
• Citigroups Target Price
• Target Price ........................... 61.00
• Expected Share Price Return ..... 27.2
• Expected Dividend Yield ............. 2.1
• Totaling
  29.3

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Analyst Opinion
Buy 100 Shares at 45.32 4532.00

• Safe company
• Low Beta and Most loans are backed by the
  government eliminating credit risk
• Dominant company in a growing Industry
• Industry is growing at 2 to 3 times inflation
• Trading around its 52 week low
• Low P/E historically
• Likely stock price will bounce up to average P/E

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Other Opinions???