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Here's Why Sallie Mae Stock Is Soaring

By Matthew Frankel, CFP® - Jan 23, 2020 at 12:11PM

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The student lender formally known as SLM Corporation just surprised investors.

What happened

SLM Corporation (SLM -0.11%), better known as student loan company Sallie Mae, just released its fourth-quarter results, and investors appear to be very happy with them.

As of 11:30 a.m. EST, shares were up by more than 20%.

Two students with textbooks in laps, giving thumbs-up.

Image source: Getty Images.

So what

There seem to be two catalysts propelling Sallie Mae higher. First is the company's Q4 results. Core earnings for the quarter and full year not only came in higher than analysts had expected, but also represented strong growth. Full-year 2019 core earnings of $1.27 per share were 19% higher than 2018.

Second, and more significantly, Sallie Mae surprised investors with a plan to sell about $3 billion worth of loans in order to fund a $600 million share repurchase plan. The move seems to be welcomed by investors and analysts alike. Many analysts believe Sallie Mae's shares are undervalued relative to its assets, and monetizing so much of the company's assets could push the stock price higher.

Now what

As a student lender, Sallie Mae does have a fair amount of uncertainty in the years ahead, especially with student loan debt being such a hot-button issue as we head into the 2020 presidential election. And the share price reflects this -- even after the post-earnings pop, Sallie Mae trades for less than six times its 2020 core earnings guidance. The loan sales and share repurchases will help mitigate these returns from an investor's perspective, but there are still some big questions surrounding the future of the student loan industry in general.

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