Wells Fargo announced its plans to sell roughly $9.7 billion of Federal Family Education Loan Program (FFELP) loans, and this could be a catalyst for other banks looking to sell. The buyers are Navient and Nelnet. When this sale goes through, Credit Suisse would increase the price targets by $1 for Navient and $9.50 for Nelnet, assuming the entire portfolio is acquired at a 0.5% return on assets.
Navient has a consensus price target of $19.25 and a post-IPO trading range of $15.00 to $18.28. Its market cap is over $7 billion.
Nelnet has a consensus price target of $53.50 and a 52-week trading range of $34.86 to $45.91. The company has a market cap of $2 billion.
Sallie Mae has a consensus price target of $10.63 and a 52-week trading range of $7.53 to $9.77. It has a market cap of $3.81 billion.
Credit Suisse’s Moshe Orenbuch had this to say about student loan competition:
Private student loan competition and origination forecasts. We believe Sallie Mae’s originations will grow from $4 billion in 2014 to $4.3 to $4.5 billion in 2015 and $4.6 billion to $5.1 billion in 2016. We take a deeper look at competition in private student lending and expect the company to maintain its market share in the short-term due to barriers to entry, the small size of the origination market, and regulatory risk. Paydowns could increase marginally if competitors refinance more private student loans.
J.P. Morgan has stopped making new student loans, according to Credit Suisse, and could stand to sell off its private student loan portfolio. It is worth noting that typical private student loan portfolios generate between 1.6% and 2.3% in a return on assets, and that each $1 billion in private student loans could add approximately $0.04 to $0.05 in annual earnings per share.
Regulatory risk appears to be lower when Senator Warren’s bill failed for a second time. Senators Rubio and Warner also are not pushing their income-based repayment bill. Dischargeability in bankruptcy is a perennial topic, but currently there are no signs the debate will take off and reach the forefront.
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