Financial Services Stocks

SLM Corp Valuation – July 2018 $SLM

Company Profile (excerpt from Reuters): SLM Corporation, incorporated on December 2, 2013, 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 college company. It is engaged in originating and servicing Private Education Loans it makes to students and their families. The Company 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. The Company also operates Upromise, Inc. (Upromise), a consumer savings network that provides financial rewards on everyday purchases to help families save for college.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SLM – July 2018

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 $5,170,427,490 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
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 -14.00% Fail
5. Moderate PEmg Ratio PEmg < 20 16.70 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.00 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.71
MG Growth Estimate 2.65%
MG Value $9.81
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $10.31
MG Value based on 0% Growth $6.05
Market Implied Growth Rate 4.10%
Current Price $11.88
% of Intrinsic Value 121.09%

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 growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding 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 growing its EPSmg (normalized earnings) from $0.6 in 2014 to an estimated $0.71 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.1% 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 $10.39. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.7, which was below the industry average of 21.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

SLM Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Graham Number $10.39
PEmg 16.70
PB Ratio 2.00
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $3,744,345,000
Total Assets $23,406,322,000
Intangible Assets $0
Total Liabilities $20,796,489,000
Shares Outstanding (Diluted Average) 438,977,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.00
Dec2017 $0.62
Dec2016 $0.53
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.71
Dec2017 $0.56
Dec2016 $0.53
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

Recommended Reading:

Other ModernGraham posts about the company

SLM Corp Valuation – December 2016 $SLM
SLM Corporation Analysis – August 2015 Update $SLM
5 Low PE Stocks for the Enterprising Investor – July 2015
5 Most Undervalued Companies for the Enterprising Investor – July 2015
5 Most Undervalued Companies for the Enterprising Investor – June 2015

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Willis Towers Watson PLC Valuation – Initial Coverage June 2018 $WLTW
PayPal Holdings Inc Valuation – June 2018 $PYPL
Synchrony Financial Valuation – June 2018 $SYF
CBRE Group Inc Valuation – June 2018 $CBRE

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.

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