SLM Corp Valuation – December 2016 $SLM
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how SLM Corp (SLM) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): SLM Corporation is a holding company. The Company’s primary business is to originate and service loans it makes to students and their families to finance the cost of their education. The Company is a saving, planning and paying for education company. It is engaged in originating and servicing Private Education Loans it makes to students and their families. It uses Private Education Loans to mean education loans to students or their families that are not made, insured or guaranteed by any state or federal government. It also operates Upromise, Inc., a consumer savings network that provides financial rewards on everyday purchases to help families save for college. Its Private Education Loans are made primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans and customers’ resources. The Company’s Private Education Loans that it owns or services are originated and funded by its subsidiary, Sallie Mae Bank (the Bank).
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SLM December 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass all 6 of the following tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $4,525,406,657 | Pass | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -159.53% | Fail | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 20.75 | Fail | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.08 | Pass | |
| Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor. | ||||
| 1. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 2. Dividend Record | Currently Pays Dividend | Fail | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.52 |
| MG Growth Estimate | -3.09% |
| MG Value | $1.21 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $7.57 |
| MG Value based on 0% Growth | $4.44 |
| Market Implied Growth Rate | 6.12% |
| Current Price | $10.83 |
| % of Intrinsic Value | 892.91% |
SLM Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.66 in 2012 to an estimated $0.52 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into SLM Corp revealed the company was trading above its Graham Number of $6.8. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.75, which was above the industry average of 19.87.
SLM Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Graham Number | $6.80 |
| PEmg | 20.75 |
| PB Ratio | 2.08 |
| Dividend Yield | 0.00% |
| TTM Dividend | $0.00 |
| Number of Consecutive Years of Dividend Growth | 0 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Long-Term Debt & Capital Lease Obligation | $1,577,689,000 |
| Total Assets | $17,745,613,000 |
| Intangible Assets | $0 |
| Total Liabilities | $15,486,117,000 |
| Shares Outstanding (Diluted Average) | 433,523,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $0.52 |
| Dec2015 | $0.59 |
| Dec2014 | $0.42 |
| Dec2013 | $0.58 |
| Dec2012 | $0.45 |
| Dec2011 | $1.18 |
| Dec2010 | $0.94 |
| Dec2009 | $0.38 |
| Dec2008 | -$0.69 |
| Dec2007 | -$2.26 |
| Dec2006 | $2.63 |
| Dec2005 | $3.05 |
| Dec2004 | $4.04 |
| Dec2003 | $3.29 |
| Dec2002 | $1.64 |
| Dec2001 | $0.76 |
| Dec2000 | $0.92 |
| Dec1999 | $1.02 |
| Dec1998 | $0.98 |
| Dec1997 | $0.93 |
| Dec1996 | $0.70 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $0.52 |
| Dec2015 | $0.56 |
| Dec2014 | $0.60 |
| Dec2013 | $0.70 |
| Dec2012 | $0.66 |
| Dec2011 | $0.48 |
| Dec2010 | $0.15 |
| Dec2009 | $0.04 |
| Dec2008 | $0.37 |
| Dec2007 | $1.32 |
| Dec2006 | $3.05 |
| Dec2005 | $3.02 |
| Dec2004 | $2.71 |
| Dec2003 | $1.88 |
| Dec2002 | $1.13 |
| Dec2001 | $0.90 |
| Dec2000 | $0.95 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
