Navient (NAVI) Up 2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Navient (NAVI). Shares have added about 2% in that time frame, outperforming the S&P 500.

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

Navient Q1 Earnings Beat Estimates, Expenses Fall

Navient pulled off a positive earnings surprise of 19.6% in first-quarter 2019. Core earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 46 cents. Also, the bottom line came in above the year-ago quarter figure of 40 cents.

Core earnings excluded the impact of derivative accounting treatment. It also excluded the impact of certain other one-time items, including goodwill and acquired intangible asset amortization.

First-quarter results of Navient benefited from a decline in provisions and expenses. Also, higher fee income offered support. However, lower net interest income was a key headwind. Year-over-year decline in loans was another offsetting factor.

GAAP net income for the quarter was $128 million or 52 cents per share compared with $126 million or 47 cents per share in the year-ago quarter.

Fall in NII Offset by Lower Expenses and Provisions (on core earnings basis)

Net interest income (NII) dipped 9% year over year to $300 million.

Non-interest income rose 17.3% to $210 million. Asset recovery and business processing revenues, other income and gain on debt repurchases increased.

Provision for loan losses decreased nearly 12.6% to $76 million.

Total expenses declined 8.9% to $257 million from the year-ago quarter.

Segment Performance

Federal Education Loans: The segment generated core earnings of $127 million, down 9.9% year over year. Lower revenues and higher adjusted expenses posed as headwinds.

During the reported quarter, Navient acquired FFELP loans of $84 million. As of Mar 31, 2019, the company’s FFELP loans were $69.9 billion, down 12%.
Consumer Lending: The segment reported core earnings of $65 million, up 30% year over year. Lower provisions and expenses were the positives. Net interest margin was 3.22%, down 1 basis point.

Private education loan delinquencies of 30 days or more of $1.1 billion were down $135 million from the prior-year quarter.

As of Mar 31, 2019, the company’s private education loans totaled $22.1 billion, down 3.5%.

Business Processing: The segment reported core earnings of $10 million, stable year over year. Decline in fee income was offset by lower expenses.

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 might also issue term asset-backed securities (ABS).

During the reported quarter, Navient issued $1.9 billion in term ABS. Also, the company repurchased $46 million of senior unsecured debt.

Outlook

In 2019, management plans to achieve private education refinance loan originations of at least $3 billion. Also, private education loan in-school originations of at least $150 million is expected.

Core EPS is expected to be in the range of $1.93-$2.03, excluding expenses associated with regulatory costs and restructuring expenses.

Also, operating expenses in the range of $940-$960 million is anticipated, excluding expenses associated with regulatory costs and restructuring expenses.

Business Processing segment revenues of at least $270 million with expected EBITDA margins in the high teens is expected.

Further, management expects FFELP NIM for the full year to be around 0.80%. Also, private education loan NIM is likely to be between 3.10% and 3.20%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.13% due to these changes.

VGM Scores

Currently, Navient has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Navient has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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