Zacks Analyst Blog Highlights: SLM Corporation, Citigroup, Nelnet, ViroPharma and Kinder Morgan Energy Partners, L.P.

Mar 02, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, March 2, 2011 /PRNewswire/ -- Analyst Blog features: SLM Corporation (NYSE: SLM), Citigroup Inc. (NYSE: C), Nelnet Inc. (NYSE: NNI), ViroPharma Inc. (Nasdaq: VPHM) and Kinder Morgan Energy Partners, L.P. (NYSE: KMP).

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Here are highlights from Tuesday's Analyst Blog:

Stable Outlook for Sallie Mae

The rating outlook on SLM Corporation (NYSE: SLM), which is popularly known as Sallie Mae, has recently been upgraded to Stable from Negative by Standard & Poor's (S&P) Ratings Services. The upgrade reflects the rating agency's expectation of an improvement in the quality of its private loans portfolio over the next two years with a recovery in the economy. The long-term credit rating of BBB- for Sallie Mae has also been affirmed by S&P.

By the end of next year, the rating agency expects a 20% or more decline in loan charge-offs. Substantial reduction in charge-offs in its "nontraditional" loans, higher-rate loans for borrowers with impair credit records, is also predicted by the agency. The company had stopped originating such loans in January 2008. Additionally, stringent standards for credit extension coupled with rigid policies for collecting loan repayments from borrowers should also improve the loan portfolio.

In January, Sallie Mae reported fourth quarter 2010 core earnings of $401 million or 75 cents per share, which were ahead of the Zacks Consensus Estimate of 72 cents. The results compare favorably with prior-year quarter's core earnings of $268 million or 44 cents per share attributable to a decrease in loan loss provisions and gains from repurchasing debt. During the quarter, the company repurchased $1.3 billion of debt with realized gains of $118 million.

For full-year 2010, core earnings increased to $1.03 billion or $1.92 per share from $807 million or $1.40 per share in 2009 and were ahead of the Zacks Consensus Estimate of $1.84 per share. The increase was driven by improved federal student loan margins and decreased provisions for loan losses.

Sallie Mae successfully accomplished the acquisition of $26 billion in securitized federal student loan assets from The Student Loan Corporation, a Citigroup Inc. (NYSE: C) subsidiary in December 2010. The acquisition expands Sallie Mae's customer base by approximately 1.3 million and promises earnings accretion ahead.

Our Take

We believe that Sallie Mae's leading position in the student lending market, restructuring initiatives and an efficient cost structure would give it a competitive advantage.  The company is anticipated to benefit from the servicing contract with the U.S. Department of Education while cash flows from its business activities are also expected to be decent.

However, given the elimination of the federally guaranteed student loan origination business last July, following the passage of Student Loan Reform Act, the business model of companies such as Sallie Mae and Nelnet Inc. (NYSE: NNI) needs substantial change as their traditional role requires significant modification. This remains a concern.

However, credit improvement, strategic acquisition and overall economic improvement should support Sallie Mae's future earnings.

Sallie Mae shares retain a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation.

ViroPharma Impresses on All Fronts

ViroPharma Inc. (Nasdaq: VPHM) posted fourth quarter 2010 earnings of 47 cents per share, beating the Zacks Consensus Estimate by 15 cents and the year-ago figure by 24 cents. In 2010, earnings increased 74.2% year over year to $1.62, beating the Zacks Consensus Estimate of 93 cents per share. Higher product sales helped boost earnings.

Quarterly revenues of $121.6 million beat the Zacks Consensus Estimate of $114 million and were 38.5% above the year-ago revenue of $87.8 million. Annual revenues at ViroPharma increased 41.4% to $439.0 million, beating the Zacks Consensus Estimate of $430 million.

Revenues were spurred by higher sales of Cinryze and Vancocin.

Quarterly Highlights

Cinryze sales increased 46% to $52.5 million during the fourth quarter, while Vancocin sales came in at $67.8 million, reflecting a 31% rise.

The increase in Cinryze sales was due to higher patient demand while price increases boosted Vancocin sales.

Research and development (R&D) expenses increased 17.2% during the quarter to $10.5 million given the Cinryze and VP20621 clinical programs.

Selling, general and administrative (SG&A) expenses amounted to $24.3 million, up 14.9% year over year, primarily due to increased marketing expenses, legal costs and compensation expense.

Promising JV for Kinder Morgan

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) announced plans to form a joint venture with Oklahoma-based companies Deeprock Energy Resources LLC and Mercuria Energy Trading. In this regard, Kinder Morgan will acquire a 50% stake in a crude oil storage plant for approximately $25 million.

The joint venture aims at increasing the Cushing-based storage unit's existing capacity of 1 million barrels by 750,000 barrels with the addition of three new storage tanks. The newly constructed plants are expected to be put into service in third quarter 2011.

Per the terms of the agreement, Kinder Morgan will be utilizing Deeprock's undeveloped acreage of 254 acres for potential expansions. Privately owned Deeprock Energy Resources will act as the construction manager and operator of the terminal, while international private company Mercuria will be the anchor tenant for the project over the next five years, with an extendable option.

Managements of the threesome remain highly enthusiastic about this promising venture. According to them, this project provides a strong dais for enhancing the key crude oil market and meeting its growing demand from customers in Cushing. The companies are looking forward to capitalize on the crude oil storage business opportunities in the coming months via various other deals.

Headquartered in Houston, Texas, Kinder Morgan is the largest independent owner and operator of petroleum-product pipelines in the U.S. The company operates in five segments: Products Pipelines, Natural Gas Pipelines, CO2, Terminals, and Trans Mountain.

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