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Lower Interest Rates to Hurt Navient's (NAVI) Q1 Earnings

Zacks Equity Research

Navient Corporation NAVI is scheduled to report first-quarter 2020 results on Apr 22, after market close. While the company’s earnings are expected to have increased on a year-over-year basis, revenues might have declined.

This Wilmington, DE-based lender’s fourth-quarter 2019 earnings surpassed the Zacks Consensus Estimate, primarily backed by lower expenses and provisions. Further, private education loans jumped. However, a fall in net interest income acted as a headwind.

Notably, the company has an impressive surprise history. Navient outpaced earnings estimates in each of the trailing four quarters, the average positive surprise being 21.2%.

Navient Corporation Price and EPS Surprise


Navient Corporation Price and EPS Surprise

Navient Corporation price-eps-surprise | Navient Corporation Quote

Activities of the company during the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 71 cents has been stable over the past 30 days. Also, it indicates an improvement of 29.1% from the year-ago reported figure.

The consensus estimate for sales of $283.7 million indicates a 0.5% decline.

Key Factors to Note

Higher Loans: Per the Fed’s latest data, the consumer lending scenario remained decent during the quarter. Thus, Navient is likely to have witnessed an increase in overall loan balances.

Decline in Net Interest Income (NII): Despite loan growth, the company’s NII is expected to have witnessed a fall in the quarter because of lower interest rates. Notably, in March, the Federal Reserve reduced interest rates to near-zero in order to protect the economy from the impacts of the coronavirus outbreak.

The consensus estimate for NII for the first quarter is pegged at $284 million, indicating a decline of 3.4% sequentially.

Lower Non-Interest Income: Weakness in fee income might have kept Navient’s top line under pressure in the to-be-reported quarter. The Zacks Consensus Estimate of $56 million for servicing revenues indicates a decline of 3.4% from the previous quarter. The consensus estimate for asset recovery revenues reflects a fall of 1.6%.

Elevated Expenses: Navient’s initiatives to become a technologically advanced company and its aim to expand services outside the educational industry are likely to have resulted in elevated expenses.

Here is what our quantitative model predicts:

Our quantitative model doesn’t predict an earnings beat for Navient this time around. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better increases the odds of an earnings beat, which is not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Navient is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 2 (Buy).

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

BCB Bancorp, Inc. (NJ) BCBP is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Carolina Financial Corporation CARO is +1.43% and it carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers soon.

SB One Bancorp SBBX is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.85%.

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