Shares of student lender SLM Corp., better known as Sallie Mae, rose Wednesday after an analyst initiated coverage with an "Accumulate" rating and $23 price target.
Sallie Mae shares rose 46 cents, or 3 percent, to $15.70, in late morning trading. Shares have traded between $12.35 and $53.65 during the past year.
Buckingham Research Group analyst David Hochstim wrote in a research note that Sallie Mae's position as a "leading provider" of student loans should allow it to benefit from "scale and expertise in underwriting, originating and servicing student loans."
The student lender could also be an acquisition target for a large consumer bank, Hochstim said. Sallie Mae could provide a bank a profitable stand-alone business and provide access to a new customer base to cross-sell products, Hochstim said.
Hochstim did note that Sallie Mae faces near-term financing challenges as the credit markets remain weak.
"Earnings are likely to remain depressed by higher funding costs," Hochstim wrote in the note. "Earnings growth remains dependent on the company's ability to obtain lower cost funding."
Hochstim projects Sallie Mae will earn 32 cents per share in the third quarter and $1.31 per share for the full year. He estimates Sallie Mae's earnings will increase to $2.17 per share in 2009.
The 2009 projection includes an expected sale of loans to the U.S. Department of Education.