Student Loan Corp. -- Go Where The Analysts Don't (STU)

Student Loan Corp (STU) is one of the largest originators of government backed student loans in the country. In 2005 the company reported sales near $1.5 billion and every dollar of those sales is fantastically profitable. Since 2001 Student Loan Corp has reported a net profit margin of 42% or better and a return on equity of 22% or better. Wow!

What does STU do with all of its profits? A good portion of them are paid out to shareholders as dividends. The yield on the stock is now about 2.5%.

Analysis of the balance sheet is trickier than usual because the company is highly leveraged, but much of the leverage is federally guaranteed. We need to spend more time on it before we get comfortable, but do note a price/book ratio of 2.96.

We’re also not sure how to think about valuation. The trailing P/E is 14.2 and price/sales is 6.6. Is that cheap or expensive? What goes into those earnings that form the basis for the P/E ratio? For comparison, SLM Corp (SLM, “Sallie Mae”) trades at 18.2 times trailing earnings and 6.7 times sales.

One thing we can say though is that if the past EPS trend continues, shareholders should have ear-to-ear smiles. Since 1997 Student Loan Corp has grown earnings per share by growing net income while keeping shares outstanding constant. According to MSN, earnings per share for 1997 through 2005 are: 2.58, 3.67, 4.47, 5.24, 6.77, 8.77, 10.61, 14.25, and 15.18.

Despite STU’s phenomenal margins, returns, growth, and a market cap of over $4 billion, as far as we can tell not a single analyst covers the company. We’re not 100% sure why, but we’d venture to guess that the limited trading volume and Citigroup’s 80% ownership have something to do with it. Don’t let that bother you—if you can find gems that don’t interest others, all the better.

STU 1-yr chart: