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Navient Gains From Higher Loan Origination, Legal Costs Rise

Zacks Equity Research

Navient Corporation NAVI continues to benefit from strong position in the educational loan industry. Further, its plans to bolster top line through new loan originations and strengthening business processing segment. However, higher legal expenses remain a concern.

The Zacks Consensus Estimate for current-year earnings of $2.45 has remained stable over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Shares of Navient have gained 50.3% so far this year compared with 31.2% growth witnessed by the industry it belongs to.

Navient remains focused on introducing new products and building technology platform. In April 2019, it announced the launch of an innovative and user-friendly Private Education Loan product to help students and families finance higher education. These initiatives are expected to help the lender meet new loan originations target and drive top-line growth.

Also, the company continues to boost its business through inorganic growth strategies. In November 2017, it 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.

Further, the stock looks undervalued as its price-to-book and price-to-earnings ratios remain below the respective industry averages. It currently has a Value Score of B.

However, the company is exposed to increasing expenses. Several litigations issues and strict regulatory scrutiny in the U.S. student loan industry are likely to affect its financials.

Also, Navient is less active in relation to its capital deployment activities. Though the company approved share buyback program of up to $500 million in September 2018, it last announced a dividend hike in January 2015. Since Navient’s debt/equity ratio compares unfavorably with its industry average, we believe that the capital deployment activities might not be sustainable.

Stocks to Consider

The Zacks Consensus Estimate for Ally Financial’s ALLY current-year earnings has been revised slightly upward in the past 60 days. Also, its share price has surged 50% so far this year. It carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CURO Group Holdings Corp. CURO currently has a Zacks Rank of 2. Its earnings estimates for 2019 have been revised 6.4% upward over the past 60 days. Further, year to date, the company’s shares have gained 44.8%.

The Zacks Consensus Estimate for Credit Acceptance Corporation CACC current-year earnings has been revised 3% upward in the past 60 days. Also, its share price has risen 24.1% so far this year. It carries a Zacks Rank #2 at present.

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