SLM Corp (SLM) Stock Dives 65% On Spinoff

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SLM Corp (SLM) Stock Dives 65% On Spinoff

Sallie Mae, now known as SLM Corp (NASDAQ:SLM) is having an atrocious day on today’s market. The $4 billion lender has seen its stock drop by more than 64% after the spinoff of its loan management services in a vehicle called Navient Corp (NASDAQ:NAVI) this morning. The collapse in the value of SLM shows the lack of faith in its remaining student loan business, at least according to the opinion of investors.

The loss of 64% of its value in a transfer of a little over 20% of its assets net loans, to another firm shows the lack of any expectations about the future of SLM Corp (NASDAQ:SLM). A couple of analyst reports about the future of the company were a little more optimistic than the market today, but few seem expect the firm to perform incredibly well given its growth constraints.

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Citigroup says SLM will Outperform

In a report released in anticipation of the Navient Corp (NASDAQ:NAVI) spinoff, Citigroup Inc. (NYSE:C) analysts released a report on the company. Sallie Mae shares are to Outperform according to that firm’s analysis. The future of the company may not be bright, but they reckon shares are worth around $11, ahead of the $9.05 they sold for at time of writing.

According to the analysis “Sallie Mae Bank is a fast growing, highly profitable, mid-cap bank specializing in making student loans to undergraduate and graduate students.” the Citigroup analysts aren’t the only ones that reckon the company’s stock may be worth a gamble, even as the firm’s stock crumbles on its first day separated from Navient Corp (NASDAQ:NAVI).

Credit Suisse also initiated coverage on SLM Corp (NASDAQ:SLM) in anticipation of the split. The analysts at that bank held similar opinions to those at Citigroup Inc. (NYSE:C), rating Sallie Mae at Outperform, and slapping on a price target of $11. Fitch rated the company’s debt, which has all been transferred to Navient Corp (NASDAQ:NAVI) at BB, and removed its debt rating from SLM Corp, which no longer carries any.

Sallie Mae looks to the future

Business at Sallie Mae has changed in recent years, and it’s difficult to track the company’s trajectory given the split between SLM Corp (NASDAQ:SLM) and Navient Corp (NASDAQ:NAVI). The Credit Suisse analysts who took a look at the company’s valuation reckon that it is worth $11 on their expectation of “a rapid growth period will last for at least the next five years.”

Sallie Mae, like its cousins Fannie Mae and Freddie Mac, started life as a government sponsored enterprise. Those three banks are able to offer loans which are fully guaranteed by the government of the United States. the company, unlike those in the mortgage market, became completely private in 1997 and Congress abolished its charter in the same year.

The student loan business in the United States is one that boomed in the twenty-first century, and SLM Corp (NASDAQ:SLM) has been one of the major beneficiaries. The company’s future may be constrained by many factors after today’s spin off, but the company is still an interesting one, if the shock of a one-day 64% drop in value can be put aside for the time being.

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5 COMMENTS

  1. Stuart is absolutely right. If I have 10 apples with a total value of 10$, and next I split the 10 apples into two parts of 7 (NAVI) and 3 (SLM), is it correct to claim that the “SLM part” of apples (i.e. 3 apples) has now lost 70% of it’s original 10$ value? Of course not. On a per-apple basis all apples still have exactly the same value, that is 1$ per apple. But they are now split into two segments/companies of worth 7 apples (= 7$) and 3 apples (= 3$). The article’s premise is seriously flawed.

  2. WRONG. The spin-off adjustment taken into account makes today’s market movement less than 2%. This author obviously doesn’t do homework.

  3. with all due respect, the first two paragraphs indicate a lack of understanding of how spin-offs work. on an adjusted basis SLM is down 1.6% currently.

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