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First Data & Navient Ink Deal for Student Loan Technology

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First Data Corporation yesterday announced a strategic deal with Navient Corporation (NAVI - Free Report) wherein First Data will act as the primary technology solutions provider for Navient’s federal and private education loans. As part of the deal, First Data will also purchase Navient’s student loan technology platform.

Currently, both the companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Navient is one of the leading providers of business processing and asset management solutions for education, healthcare, and government clients. The company’s offerings include customer service, back office support, data insights, default prevention and other related services.

The deal will enable First Data to enjoy a competitive position in the student loan technology market, while leveraging its technology and expertise for the said purpose. To better cater to demand, it will introduce First Data Education, which will be run by Jeff Whorley. Jeff has been Navient’s Group President, Asset Management and Servicing. He will become a member of First Data’s Management Committee.

The deal, subject to certain closing conditions, is anticipated to close in third-quarter 2018. It is an expansion of a long-term alliance between the two companies to support private student loans.

Growing GFS Segment

We believe the partnership with Navient will perfectly complement First Data’s capabilities in the student loan technology industry, while boosting its Global Financial Solutions (GFS) segment. GFS provides technology solutions for all types of financial institutions.

The segment accounts for almost 21-22% of the company’s total reported yearly revenues. In 2017, it accounted for almost 22% of total revenues, which marked an improvement from a contribution of 21% in 2015. Additionally, in first-quarter 2018, revenues from this segment grew 2% on a reported and comparable accounting basis and 1% on an organic constant-currency basis to $400 million.

Further, the GFS segment continues to grow with the help of new deals, partnerships and renewed agreements, globally.

The company recently expanded its partnership with Lloyd's Banking Group and signed an agreement to provide processing services for the group's recently acquired MD&A portfolio with more than 3 million accounts. First-quarter 2018 witnessed the renewal of some processing agreements globally such as Finance Informatic in Germany, Alior Bank in Poland, DBS in Singapore, Taiwan, Hong Kong and Indonesia and two leading banks in the Middle East. Expansion of partnership with SBI Card on Jan 25, 2018 - a leading credit card issuer in India - has expanded the company’s client base and is likely to boost the top line.

Price Performance

In the last six months, shares of First Data have returned 16.8%, outperforming the industry’s gain of 2.9%.

 

We believe First Data’s focus on globalizing its offerings, acquisitions and strategic partnerships along with a healthy business around large and small banks have acted as the major driving factors behind the company’s impressive price performance.

Stocks to Consider

Some better-ranked stocks in the broader Business Services sector include Avis Budget Group, Inc. (CAR - Free Report) and Xerox Corporation (XRX - Free Report) . While Avis Budget sports a Zacks Rank #1, Xerox carries a Zacks Rank #2 (Buy).

In the trailing four quarters, Avis Budget and Xerox delivered a positive earnings surprise of 35.4% and 6% respectively.

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