Sallie Mae soars after Cramer, analyst comments

NEW YORK (Reuters) - Sallie Mae SLM.N shares rose as much as 22.4 percent on Monday following positive comments from a prominent television stock-picker and after an analyst said possible changes to U.S. student lending laws would not cripple the big student loan provider.

CNBC analyst Jim Cramer on Friday called the Reston, Virginia-based company his “speculative stock of the year” and said its share price could double.

Meanwhile, William Blair & Co analyst David Long wrote that even if the Obama administration cut subsidies to student lenders, Sallie Mae would still likely be able to make and service loans for the Department of Education.

In afternoon trading, Sallie Mae shares were up $1.00, or 15.1 percent, at $7.61, after earlier rising to $8.09.

Company spokesman Joe Fisher declined to comment on the stock movement but said the company was aware of the reports.

Standard & Poor’s equity analyst Kevin Cole raised his 12-month share price target to $8.50 from $6.00, citing an “improved economic outlook.”

Sallie Mae, whose formal name is SLM Corp, has been under pressure since President Barack Obama in February asked Congress to cut subsidies to lenders.

Students may obtain college loans by borrowing from the government or by taking out government-subsidized loans from private lenders.

Obama called for ending the Federal Family Education Loan Program (FFELP) by July 2010 and shifting most of the nation’s $90 billion of student lending into the direct-loan program, possibly saving taxpayers more than $4 billion a year.

The FFELP generated the vast majority of the $150 billion of loans on Sallie Mae’s balance sheet as of March 31. Moody’s Investors Service last month downgraded Sallie Mae to “junk” status, citing the potential for lower earnings and cash flow.

Cramer, though, said that even if the FFELP disappeared, the government could still use the company to service loans and collect bad debts.

“These are already both huge businesses for Sallie Mae, and they’re the best at it, far better than the government could ever be, so they’ll save the taxpayer money,” Cramer said. “Reports of Sallie Mae’s death are premature.”

Long said the government needs Sallie Mae to remain a lender because the direct loan program cannot handle all the government-guaranteed loan volume. He also said Sallie Mae should win part of a U.S. Department of Education mandate to service loans from its Loan Purchase Program.

“It has the critical mass to service FFELP loans more efficiently than its peers and it has a very good track record in minimizing loan losses,” Long wrote. The analyst said Sallie Mae would be worth $12 per share based on cash flow alone.

Sallie Mae shares closed at $8.39 on February 25 and fell to $5.80 the next day when Obama announced plans to end the FFELP. They had not traded above $8 since then, until Monday.

Reporting by Jonathan Stempel, editing by Gerald E. McCormick