Navient (NAVI) up 7.2% since last earnings report: can this continue?


It’s been about a month since Navient’s last revenue report (NAVI). Stocks rose about 7.2% during that time, outperforming the S&P 500.

– Zack

Will the recent positive trend continue until its next results release, or is Navient likely to experience a pullback? Before we dive into how investors and analysts have reacted in recent times, let’s take a quick look at his latest earnings report to better understand the important factors.

Navient Third Quarter Profits Surpass Estimates, Spending Rises

Navient reported earnings per share of 89 cents in the third quarter of 2021, beating Zacks’ consensus estimate of 83 cents. Still, the result is lower than the 99-cent figure from last year’s quarter.

Basic income excludes the impacts of certain other one-off items, including mark-to-market gains / losses on derivatives, as well as amortization of goodwill and acquired intangible assets, and impairment.

The company’s performance was supported by strong loan origination and deal processing operations. However, the decline in net interest income (NII) and non-interest income, as well as higher expenses are cause for concern. In addition, the increase in provisions was a headwind.

Navient’s GAAP net income was $ 173 million or $ 1.04 per share, compared to net income of $ 207 million or $ 1.07 per share the previous year.

NII Decreases, Provisions and Expenses Soar (Based on Basic Profits)

The NII edged down 1% year-over-year to $ 334 million.

Non-interest income fell 10% to $ 160 million. This decrease is mainly due to losses on debt buybacks, losses on derivative and hedging activities and lower service income.

The allowance for loan losses was a provision of $ 22 million, marking a 57% year-over-year increase from the $ 14 million recorded in the prior year quarter.

Total spending increased 5% to $ 252 million. The increase in operating expenses and the increase in goodwill and in depreciation and amortization charges on intangible assets acquired mainly explain this reversal.

Segment performance

Federal Education Loans: The segment generated basic profit of $ 122 million, down 11% year-over-year. The decline in income was partly offset by lower expenses.

As of September 30, 2021, the company’s FFELP loans were $ 54.4 billion, down 2.2% sequentially.

Consumer loans: The segment reported basic profit of $ 73 million, down 34% from $ 110 million in the previous year quarter. The provision for loan losses and higher expenses resulted in lower segment performance. The net interest margin was 2.98%, down 26 basis points.

Private education loan delinquencies of 30 days or more of $ 599 million were up 20% from the previous year quarter.

As of September 30, 2021, the company’s private education loans were $ 20 billion, up 1.5% from the previous quarter. In addition, Navient issued $ 1.49 billion in private education refinancing loans during the quarter under review.

Business Processing: The segment reported basic profit of $ 27 million, up 69% from $ 16 million in the same quarter last year. Higher fee income drove this increase.

Source of funding and liquidity

In order to meet liquidity needs, Navient plans to use various sources including liquidity and investment portfolio, predictable operating cash flows provided by operating activities, repayment of principal on assets unencumbered student loans and distributions from securitization trusts. It may also use the FFELP secured loan and private education loan facilities, issue term ABSs, enter into additional private education loan asset-backed securities (ABS) repurchase facilities or issue debt. no additional warranty.

During the current quarter, Navient issued $ 2 billion in term ABS and repaid $ 757 million in unsecured debt. Notably, he had $ 1.05 billion in cash as of September 30, 2021.

Fixed asset deployment activities

In the third quarter, the company paid $ 26 million in common stock dividends.

During the current quarter, Navient repurchased common shares for $ 150 million. As of September 30, 2021, there was still $ 150 million of the share buyback authorization.

Outlook

As more borrowers move to repayment status, management expects delinquency levels to return to pre-pandemic levels. Management expects the default rate to be in the mid to low range of 3%. The charges which also depend on the product line should be of the order of 1%.

Fourth trimester

Management expects contract expirations related to the pandemic to continue to decrease and reduce corporate treatment segment revenue by 20% sequentially.

2021

More than $ 5.5 billion in combined refinancing and school arrangements in 2021 are expected.

Profits for 2021 (based on core earnings) are expected to be at least $ 4.5 per share, an increase of more than 40% from initial forecast. The outlook excludes regulatory and restructuring costs, reflects a current interest rate environment, and includes the announced debt buybacks and the use of the remaining $ 150 million share buyback authority.

2022

For 2022, management plans to incur some ongoing expenses for the contract in conjunction with the Transition Services Agreement, for which it will receive offsetting revenue payments. As the company manages the Maximus transition, it predicts that the impact of the contract transfer will translate to less than 10 cents in earnings per share for 2022.

How have the estimates evolved since then?

Over the past month, investors have seen an upward trend in the new estimates.

VGM scores

Currently Navient has a low growth score of F, but her Momentum score is doing much better with a C. Tracing a somewhat similar path, the stock received a B rating on the value side. , which puts her in the lead. 40% for this investment strategy.

Overall, the stock has an overall VGM score of C. If you’re not strategy-focused, this score is the one you should be interested in.

Outlook

Estimates are broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Navient has a Zacks Rank # 3 (Hold). We expect the stock to come back online in the coming months.

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