A month has gone by since the last earnings report for Navient (NAVI). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Navient due for a breakout? 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 drivers.
Navient Q4 Earnings Top Estimates as Expenses Decline
Navient pulled off a positive earnings surprise of 17.5% in fourth-quarter 2019. Adjusted core earnings per share of 67 cents surpassed the Zacks Consensus Estimate of 57 cents. Also, the bottom line came in higher than the year-ago quarter figure of 58 cents.
Core earnings excluded the impact of certain other one-time items, including restructuring and regulatory-related expenses.
Fourth-quarter results of Navient benefited from a fall in expenses and provisions. Further, private education loans jumped. However, lower net interest income was a key headwind. Moreover, year-over-year decline in other income was a drag.
GAAP net income for the quarter was $171 million or 78 cents per share compared with $72 million or 28 cents per share in the year-ago quarter.
For full-year 2019, the company reported GAAP net income of $597 million or $2.56 per share compared with $395 million or $1.49 a year ago.
NII and Fee Income Fall, Expenses Decline (on core earnings basis)
Net interest income (NII) dipped nearly 1% year over year to $310 million.
Non-interest income declined 12.9% to $176 million. The fall was chiefly attributed to lower servicing revenues.
Provision for loan losses plunged nearly 42% to $50 million.
Total expenses declined 7.4% to $237 million from the year-ago quarter. Lower operating expenses supported this decline.
Segment Performance
Federal Education Loans: The segment generated core earnings of $136 million, down 7.5% year over year. Lower revenues, partly muted by stable expenses, posed as a headwind.
During the reported quarter, Navient acquired FFELP loans of $280 million. As of Dec 31 2019, the company’s FFELP loans were $64.6 billion, down 2.3% sequentially.
Consumer Lending: The segment reported core earnings of $89 million, up 34.8% year over year. Lower provisions and higher revenues were the positives. Net interest margin was 3.32%, up 3 basis points.
Private education loan delinquencies of 30 days or more of $1 billion were down $290 million from the prior-year quarter.
As of Dec 31, 2019, the company’s private education loans totaled $22.2 billion, up 1.8% from prior quarter.
Business Processing: The segment reported core earnings of $8 million compared with $7 million in the year-ago quarter. Lower expenses were partially offset by fall in revenues.
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 $1.7 billion in term ABS.
Capital Deployment Activities
In the fourth quarter, Navient repurchased 5.8 million common shares. In full-year 2019, the company repurchased 34.5 million shares.
2020 Outlook (core earnings basis i.e., excluding expenses associated with regulatory costs and restructuring expenses)
Management plans to achieve net interest margin in federal education loan segment to be low to mid 80’s basis points. Also, charge-off rate in the segment is expected to be 0.06-0.08%.
Net interest margin in consumer lending segment is expected to be 3-3.10%. Also, charge-off rate in the segment is estimated to be 1.5-1.7%.
EPS is expected to be in the range of $3-$3.10. Also, return on equity is likely to be in high teens or low 20s.
In Business Processing segment EBITDA margins in the high teens is expected.
Efficiency ratio is likely to be around 50%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted 5.19% due to these changes.
VGM Scores
Currently, Navient has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Navient has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Navient (NAVI) Down 5.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Navient (NAVI). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Navient due for a breakout? 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 drivers.
Navient Q4 Earnings Top Estimates as Expenses Decline
Navient pulled off a positive earnings surprise of 17.5% in fourth-quarter 2019. Adjusted core earnings per share of 67 cents surpassed the Zacks Consensus Estimate of 57 cents. Also, the bottom line came in higher than the year-ago quarter figure of 58 cents.
Core earnings excluded the impact of certain other one-time items, including restructuring and regulatory-related expenses.
Fourth-quarter results of Navient benefited from a fall in expenses and provisions. Further, private education loans jumped. However, lower net interest income was a key headwind. Moreover, year-over-year decline in other income was a drag.
GAAP net income for the quarter was $171 million or 78 cents per share compared with $72 million or 28 cents per share in the year-ago quarter.
For full-year 2019, the company reported GAAP net income of $597 million or $2.56 per share compared with $395 million or $1.49 a year ago.
NII and Fee Income Fall, Expenses Decline (on core earnings basis)
Net interest income (NII) dipped nearly 1% year over year to $310 million.
Non-interest income declined 12.9% to $176 million. The fall was chiefly attributed to lower servicing revenues.
Provision for loan losses plunged nearly 42% to $50 million.
Total expenses declined 7.4% to $237 million from the year-ago quarter. Lower operating expenses supported this decline.
Segment Performance
Federal Education Loans: The segment generated core earnings of $136 million, down 7.5% year over year. Lower revenues, partly muted by stable expenses, posed as a headwind.
During the reported quarter, Navient acquired FFELP loans of $280 million. As of Dec 31 2019, the company’s FFELP loans were $64.6 billion, down 2.3% sequentially.
Consumer Lending: The segment reported core earnings of $89 million, up 34.8% year over year. Lower provisions and higher revenues were the positives. Net interest margin was 3.32%, up 3 basis points.
Private education loan delinquencies of 30 days or more of $1 billion were down $290 million from the prior-year quarter.
As of Dec 31, 2019, the company’s private education loans totaled $22.2 billion, up 1.8% from prior quarter.
Business Processing: The segment reported core earnings of $8 million compared with $7 million in the year-ago quarter. Lower expenses were partially offset by fall in revenues.
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 $1.7 billion in term ABS.
Capital Deployment Activities
In the fourth quarter, Navient repurchased 5.8 million common shares. In full-year 2019, the company repurchased 34.5 million shares.
2020 Outlook (core earnings basis i.e., excluding expenses associated with regulatory costs and restructuring expenses)
Management plans to achieve net interest margin in federal education loan segment to be low to mid 80’s basis points. Also, charge-off rate in the segment is expected to be 0.06-0.08%.
Net interest margin in consumer lending segment is expected to be 3-3.10%. Also, charge-off rate in the segment is estimated to be 1.5-1.7%.
EPS is expected to be in the range of $3-$3.10. Also, return on equity is likely to be in high teens or low 20s.
In Business Processing segment EBITDA margins in the high teens is expected.
Efficiency ratio is likely to be around 50%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted 5.19% due to these changes.
VGM Scores
Currently, Navient has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Navient has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.