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Navient (NAVI) Up 4.6% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Navient Corporation (NAVI - Free Report) . Shares have added about 4.6% in that time frame.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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 drivers.
Navient Beats Q3 Earnings on High Non-Interest Income
Navient’s third-quarter 2017 core earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 50 cents. Also, the figure came 10% above 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.
Third-quarter results of Navient reflect higher non-interest income. However, on the downside, the company recorded reduced net interest income and higher expenses.
Net income came in at $152 million in the quarter, down from $157 million in the prior-year period.
GAAP net income for the quarter was $176 million or 64 cents per share compared with $230 million or 73 cents per share in the year-ago quarter.
Rise in Fee Income More Than Offsets Decline in NII (on core earnings basis)
Net interest income (NII) declined 14.8% year over year to $345 million.
However, non-interest income jumped 32.4% year over year to $237 million. Asset recovery revenues rose while servicing revenues declined slightly.
Provision for credit losses increased nearly 1% year over year to $105 million.
Total expenses climbed 4.4% year over year to $238 million.
Segment Performance
Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $46 million, down 33.3% year over year. The underperformance was mainly due to lower NII owing to amortization of portfolio and contraction of net interest margin, partially offset by a decline in operating expenses.
FFELP loan spread contracted 17 basis points (bps) year over year to 0.79%.
During the quarter, Navient acquired FFELP loans of $523 million. As of Sep 30, 2017, the company’s FFELP loans were $83.9 billion, down 6.8% year over year.
Private Education Loans: The segment reported core earnings of $60 million, flat year over year.
Total delinquency rate came in at 5.7% compared with 6.9% in the year ago quarter. Charge-off rate of 1.6% of average loans in repayment was 3 bps down on a year-over-year basis. Private Education loan spread expanded 15 bps year over year to 3.79%.
As of Sep 30, 2017, the company’s private education loans totaled $23.4 billion, down 2.5% year over year.
Business Services: The segment reported core earnings of $105 million, up 29.6% from the prior-year quarter figure.
Currently, Navient services student loans for over 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 $2 billion in FFELP Loan ABS and closed on two private education loan ABS repurchase facilities totaling $343 million. Also, the company retired or repurchased $548 million of senior unsecured debt during the quarter.
Share Repurchase
During the quarter, Navient repurchased 11.3 million shares of common stock for $165 million. However, the company has currently suspended its share repurchase program through 2018 in order to use available capital toward growing education lending business and build book value.
Outlook
The company expects private education loan charge-offs and provision to increase as a result of the $3 billion portfolio acquisition.
Management expects FFELP NIM for the fourth quarter to be in the high 70s. The private education loan NIM for the fourth quarter is anticipated to be in the mid to high 330s. This updated guidance includes the anticipated acquisition of Earnest assets and the market’s anticipation of a rate increase.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
At this time, Navient's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. However, the stock was 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.
The company's stock is suitable solely for value based on our styles scores.
Outlook
The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Navient (NAVI) Up 4.6% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Navient Corporation (NAVI - Free Report) . Shares have added about 4.6% in that time frame.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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 drivers.
Navient Beats Q3 Earnings on High Non-Interest Income
Navient’s third-quarter 2017 core earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 50 cents. Also, the figure came 10% above 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.
Third-quarter results of Navient reflect higher non-interest income. However, on the downside, the company recorded reduced net interest income and higher expenses.
Net income came in at $152 million in the quarter, down from $157 million in the prior-year period.
GAAP net income for the quarter was $176 million or 64 cents per share compared with $230 million or 73 cents per share in the year-ago quarter.
Rise in Fee Income More Than Offsets Decline in NII (on core earnings basis)
Net interest income (NII) declined 14.8% year over year to $345 million.
However, non-interest income jumped 32.4% year over year to $237 million. Asset recovery revenues rose while servicing revenues declined slightly.
Provision for credit losses increased nearly 1% year over year to $105 million.
Total expenses climbed 4.4% year over year to $238 million.
Segment Performance
Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $46 million, down 33.3% year over year. The underperformance was mainly due to lower NII owing to amortization of portfolio and contraction of net interest margin, partially offset by a decline in operating expenses.
FFELP loan spread contracted 17 basis points (bps) year over year to 0.79%.
During the quarter, Navient acquired FFELP loans of $523 million. As of Sep 30, 2017, the company’s FFELP loans were $83.9 billion, down 6.8% year over year.
Private Education Loans: The segment reported core earnings of $60 million, flat year over year.
Total delinquency rate came in at 5.7% compared with 6.9% in the year ago quarter. Charge-off rate of 1.6% of average loans in repayment was 3 bps down on a year-over-year basis. Private Education loan spread expanded 15 bps year over year to 3.79%.
As of Sep 30, 2017, the company’s private education loans totaled $23.4 billion, down 2.5% year over year.
Business Services: The segment reported core earnings of $105 million, up 29.6% from the prior-year quarter figure.
Currently, Navient services student loans for over 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 $2 billion in FFELP Loan ABS and closed on two private education loan ABS repurchase facilities totaling $343 million. Also, the company retired or repurchased $548 million of senior unsecured debt during the quarter.
Share Repurchase
During the quarter, Navient repurchased 11.3 million shares of common stock for $165 million. However, the company has currently suspended its share repurchase program through 2018 in order to use available capital toward growing education lending business and build book value.
Outlook
The company expects private education loan charge-offs and provision to increase as a result of the $3 billion portfolio acquisition.
Management expects FFELP NIM for the fourth quarter to be in the high 70s. The private education loan NIM for the fourth quarter is anticipated to be in the mid to high 330s. This updated guidance includes the anticipated acquisition of Earnest assets and the market’s anticipation of a rate increase.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
Navient Corporation Price and Consensus
Navient Corporation Price and Consensus | Navient Corporation Quote
VGM Scores
At this time, Navient's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. However, the stock was 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.
The company's stock is suitable solely for value based on our styles scores.
Outlook
The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.