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Why Is Navient (NAVI) Down 7.4% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Navient Corporation NAVI. Shares have lost about 7.4% in the past month, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is NAVI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Navient Beats Q4 Earnings on High Non-Interest Income

Navient’s fourth-quarter 2017 adjusted core earnings per share (EPS) of 43 cents surpassed the Zacks Consensus Estimate by a penny. The reported figure matched the year-ago quarter tally.

Core earnings excluded the impact of losses from the derivative accounting treatment. It also excluded the impact of certain other one-time items including unrealized, mark-to-market gains/losses on derivatives, and goodwill and acquired intangible asset amortization and impairment.

Fourth-quarter results of Navient reflect higher non-interest income. However, on the downside, the company recorded lower net interest income and higher expenses.

After considering the impact of the tax reform along with restructuring and regulatory-related expenses, the company reported core net loss of $131 million in the quarter against core net income of $129 million in the year-ago quarter.

GAAP net loss for the quarter was $84 million or 32 cents per share against income of $145 million or 48 cents per share in the year-ago quarter.

For full-year 2017, Navient reported core earnings of $251 million or 89 cents per share compared with $587 million or $1.82 per share as of Dec 31, 2016.

Rise in Fee Income More Than Offsets Decline in NII (on core earnings basis)

Net interest income (NII) declined 4.3% year over year to $357 million.

However, non-interest income increased 1.1% year over year to $181 million. Asset recovery and other revenues rose while servicing revenues declined slightly.

Provision for credit losses increased nearly 7% year over year to $109 million.

Total expenses climbed 17.5% year over year to $289 million.

Segment Performance

Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $65 million, down 4.4% year over year. The underperformance was mainly due to lower NII owing to amortization of portfolio and decrease in net interest margin, partially offset by a decline in operating expenses.

FFELP loan spread contracted 2 basis points (bps) year over year to 0.96%.

During the quarter, Navient acquired FFELP loans of $463 million. As of Dec 31, 2017, the company’s FFELP loans were $81.7 billion, down 6.8% year over year.

Private Education Loans: The segment reported core earnings of $43 million, up 4.9% year over year.

Total delinquency rate came in at 5.8% compared with 7.4% in the year ago quarter. Charge-off rate of 1.5% of average loans in repayment was 8 bps down on a year-over-year basis. Private Education loan spread expanded 34 bps year over year to 3.57%.

As of Dec 31, 2017, the company’s private education loans totaled $23.4 billion, up slightly year over year.

Business Services: The segment reported core earnings of $74 million, up 4.2% from the prior-year quarter.

Currently, Navient services student loans for more than 12 million customers. This includes 6.1 million customers on behalf of the U.S. Department of Education.

Source of Funding and Liquidity

In order to meet liquidity needs, Navient expects to utilize various sources, including cash and investment portfolio, issuance of additional unsecured debt, repayment of principal on unencumbered student loan assets and distributions from securitization trusts (including servicing fees). It may also issue term asset-backed securities (ABS).

During the reported quarter, Navient issued $751 million in FFELP Loan ABS, $662 million in private education loan ABS and $250 million in unsecured debt. Also, the company retired or repurchased $95 million of senior unsecured debt during the quarter.

Also, a new $750 million revolving credit facility was closed during the quarter to warehouse private education refinance loan originations. This facility is scheduled to mature in October 2018.

Share Repurchase

During 2017, Navient repurchased 29.6 million shares of common stock for $440 million. However, the company has suspended its share repurchase program through 2018 in order to use available capital toward growing education lending business and build book value.


In 2018 management plans to achieve private education refinance loan originations of at least $1.5 billion. Also, growth in non-education related revenues of at least 30% is expected.

The effective tax rate is expected to be about 23% in 2018.

Core EPS is expected to be in the range of $1.85-$1.95, excluding expenses associated with regulatory costs and restructuring expenses.

Management expects NIM on refinance loans to be nearly 2% on account of transition of loans to lower cost ABCP facilities in securitizations. Private education NIM is anticipated to be about 3.25% in 2018. Further, management expects FFELP NIM for full year to be about 0.75%. This guidance includes the anticipated impact of two interest rate hikes of 25 basis points each in 2018.

Operating expenses are expected to remain between $910 million and $930 million, excluding expenses associated with regulatory costs.

The company expects to resume and complete share buyback plan in second half of 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. In the past month, the consensus estimate has shifted down by 11.7% due to these changes.

Navient Corporation Price and Consensus


Navient Corporation Price and Consensus | Navient Corporation Quote


VGM Scores

At this time, NAVI has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, NAVI has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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