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Navient Focuses on Boosting Top-Line Growth, Costs Rise

Zacks Equity Research

Navient Corporation’s NAVI continues to gain from its strong position in educational loan industry. Also, the company’s acquisitions are likely to benefit it. However, costs are recording a rise.

Navient’s efforts to strengthen its asset recovery and business process outsourcing capabilities are likely to boost the top line. Also, the company continues to deploy technology platform and digital marketing tools to attract originations that bode well for financials.

Moreover, Navient continues to improve its business through inorganic growth strategies. In November 2017, the company acquired Earnest, which helped it cater to customers who were unable to get finance from traditional banks. In August 2017, the lender extended its reach beyond the educational loans by acquiring Duncan Solutions — a provider of technology-enabled parking and toll services. Thus, its efforts to tap growth opportunities are likely to improve the business.

Further, the company is one of the leading servicer of education loans. Navient is the biggest portfolio holder of Private Education Loans and education loans insured or guaranteed under the Federal Family Education Loan Program (FFELP). Also, it is likely to benefit from economic recovery and declining unemployment rate.

Shares of Navient have surged 63.6% so far this year, outperforming the industry’s growth of 36.8%. Also, the Zacks Consensus Estimate for earnings of $2.52 and $2.89 has remained unchanged for 2019 and 2020, respectively, over the past 30 days. Hence, the stock currently carries a Zacks Rank #3 (Hold).

However, the company faces re-pricing risks related to its assets. This is because interest earned on FFELP loans and private education loans is primarily indexed to 1-month LIBOR rates and either 1-month LIBOR rates or the 1-month Prime rate, respectively, whereas cost of funds is primarily indexed to 3-month LIBOR rates.

Also, mounting operating expenses act as a headwind for Navient. Ongoing litigation issues and substantial volatility in the capital markets are added concerns. Moreover, high level of debt makes the company’s capital deployment activities seem unsustainable.

Key Picks

Enova International, Inc.’s ENVA current-year earnings estimates have moved 20.2% north in the past 60 days. Further, the company’s shares have surged 64.9% in the year-to-date period. At present, it sports a Zacks Rank of 1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

OneMain Holdings, Inc. OMF has witnessed upward earnings estimate revision of nearly 1% for 2019 in the past 60 days. Moreover, the Zacks Rank #2 (Buy) stock has surged 90.1% in the year-to-date period.

SLM Corporation’s SLM earnings estimates have moved marginally upward for 2019 in the past 60 days. Moreover, the Zacks Rank #2 stock has gained 9.6% in the year-to-date period.

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