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Why Is Navient (NAVI) Up 14% Since Last Earnings Report?
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It has been about a month since the last earnings report for Navient (NAVI - Free Report) . Shares have added about 14% 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 catalysts.
Navient Q4 Earnings Beat Estimates, Expenses Fall
Navient’s pulled off a notable positive earnings surprise of 20.8% in fourth-quarter 2018. Adjusted core earnings per share of 58 cents surpassed the Zacks Consensus Estimate of 48 cents. Also, the bottom line came in above the year-ago quarter figure of 43 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.
Fourth-quarter results of Navient benefited from a decline in provisions and expenses. Also, higher fee income supported the results. 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 $72 million or 28 cents per share against net loss of $84 million or 32 cents per share in the year-ago quarter. For full-year 2018, the company reported GAAP net income of $395 million or $1.49 per share, up from $292 million or $1.04 per share.
Fall in NII Offset by Lower Expenses (on core earnings basis)
Net interest income (NII) dipped 12.6% year over year to $312 million.
Non-interest income rose 11.6% to $202 million. Asset recovery and business processing revenues along with gain on debt repurchases increased.
Provision for loan losses decreased nearly 22% year over year to $85 million.
Total expenses declined 11.4% to $256 million from the year-ago quarter.
Segment Performance
Federal Education Loans: The segment generated core earnings of $147 million, up 2.8% year over year. Lower adjusted expenses along with decline in provisions came as tailwinds.
During the reported quarter, Navient acquired FFELP loans of $256 million. As of Dec 31, 2018, the company’s FFELP loans were $72.3 billion, down 11.5%.
Consumer Lending: The segment reported core earnings of $66 million, up 46.7% year over year. Lower provisions and expenses were the positives. Net interest margin was 3.18%, down 13 basis points.
Private education loan delinquencies of 30 days or more of $1.3 billion were down $38 million from the prior-year quarter.
As of Dec 31, 2018, the company’s private education loans totaled $22.2 billion, down 5.1%.
Business Processing: The segment reported core earnings of $7 million, up 75% year over year. Increase in fee income was offset by higher 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 $1.3 billion in FFELP Loan ABS. Also, the company repurchased $1.4 billion of senior unsecured debt during the quarter.
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 14.56% due to these changes.
VGM Scores
Currently, Navient has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Navient has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Navient (NAVI) Up 14% Since Last Earnings Report?
It has been about a month since the last earnings report for Navient (NAVI - Free Report) . Shares have added about 14% 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 catalysts.
Navient Q4 Earnings Beat Estimates, Expenses Fall
Navient’s pulled off a notable positive earnings surprise of 20.8% in fourth-quarter 2018. Adjusted core earnings per share of 58 cents surpassed the Zacks Consensus Estimate of 48 cents. Also, the bottom line came in above the year-ago quarter figure of 43 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.
Fourth-quarter results of Navient benefited from a decline in provisions and expenses. Also, higher fee income supported the results. 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 $72 million or 28 cents per share against net loss of $84 million or 32 cents per share in the year-ago quarter.
For full-year 2018, the company reported GAAP net income of $395 million or $1.49 per share, up from $292 million or $1.04 per share.
Fall in NII Offset by Lower Expenses (on core earnings basis)
Net interest income (NII) dipped 12.6% year over year to $312 million.
Non-interest income rose 11.6% to $202 million. Asset recovery and business processing revenues along with gain on debt repurchases increased.
Provision for loan losses decreased nearly 22% year over year to $85 million.
Total expenses declined 11.4% to $256 million from the year-ago quarter.
Segment Performance
Federal Education Loans: The segment generated core earnings of $147 million, up 2.8% year over year. Lower adjusted expenses along with decline in provisions came as tailwinds.
During the reported quarter, Navient acquired FFELP loans of $256 million. As of Dec 31, 2018, the company’s FFELP loans were $72.3 billion, down 11.5%.
Consumer Lending: The segment reported core earnings of $66 million, up 46.7% year over year. Lower provisions and expenses were the positives. Net interest margin was 3.18%, down 13 basis points.
Private education loan delinquencies of 30 days or more of $1.3 billion were down $38 million from the prior-year quarter.
As of Dec 31, 2018, the company’s private education loans totaled $22.2 billion, down 5.1%.
Business Processing: The segment reported core earnings of $7 million, up 75% year over year. Increase in fee income was offset by higher 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 $1.3 billion in FFELP Loan ABS. Also, the company repurchased $1.4 billion of senior unsecured debt during the quarter.
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 14.56% due to these changes.
VGM Scores
Currently, Navient has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Navient has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.