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The research analyst believes that persistent credit issues have damaged management’s credibility, does not see any visible catalysts to move the shares higher, and thinks it will take time to regain investor confidence.
Wells Fargo wrote in a note, “SLM reported an unexpected Q4 EPS loss of -$0.33, which was driven by a much higher provision expense. The provision expense was partly due to worsening credit expectations from forbearance policy changes & staffing/operational issues. These issues are expected to persist in 2023 and to a lesser extent, 2024. This is concerning as management had previously stated these items were largely behind the company.”
During the Q3 earnings call on 10/27, management guided that Q4 delinquency would improve to the low 3% range and that the NCO would improve with the full year at 2.3%. Despite what should have been good visibility on Q4 trends, Q4 delinquency worsened +3bps to 3.77%. And the Q4 NCO rate was sharply higher with the full year at 2.55% vs. their 2.3% estimate. On the Q4 conference call they also cited newer pockets of weakness including those borrowers earlier in the repay cycle with larger debt payments.
Wells Fargo reduced 2023 EPS and 2024 EPS estimates by $0.05 each to $2.50 and $2.70. 2023 EPS estimates are at the low-end of guidance. The lower EPS is due to higher expected credit losses, partially off-set by better NIM & loan balances.
Shares of SLM are up 2.87% in mid-day trading on Friday.
