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Here's Why You Should Hold on to Navient (NAVI) Stock Now

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Navient Corporation’s (NAVI - Free Report) continues to benefit from a strong position in the educational loan industry. Further, its plans to bolster the top line through new loan originations and the strengthening of the business processing segment. However, higher legal expenses remain concerning.

The Zacks Consensus Estimate for earnings of $2.69 and $2.33 has been revised 41.6% and 14.8% upward for 2020 and 2021, respectively, over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).

Shares of Navient have lost 36.8% so far this year compared with the industry’s decline of 29.4%.

 


The company continues to be the biggest portfolio holder of Private Education Loans and education loans insured or guaranteed under the FFELP. Also, its efforts to strengthen 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’s involvement in inorganic growth strategies to improve its business seems impressive. In 2017, the company acquired Earnest and Duncan Solutions, which helped the lender extend its reach beyond educational loans. Thus, its efforts to tap growth opportunities are likely to improve the business.

Also, the stock seems undervalued as its price-to-book (P/B) and price-to-earnings (P/E) (F1) ratios are below the respective industry averages. Additionally, it has a Value Score of A.

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 1-month Prime rates, 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 could increase the company’s financing costs. Moreover, a high level of debt makes its capital deployment activities seem unsustainable.

Key Picks

Enova International, Inc.’s (ENVA - Free Report) current-year earnings estimates have moved significantly north in the past 60 days. Further, the company’s shares have declined 33.5% in the year-to-date period. At present, it has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Credit Acceptance Corporation (CACC - Free Report) has witnessed an upward earnings estimate revision of nearly 16% for 2020 in the past 60 days. Moreover, the Zacks Rank #2 stock has gained 4.1% in the year-to-date period.

Mr. Cooper Group Inc.’s (COOP - Free Report) earnings estimates have moved 85% upward for 2020 in the past 60 days. Moreover, the Zacks #1 Ranked stock has gained 37.6% in the year-to-date period.

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