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Why Is Navient (NAVI) Up 13.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Navient (NAVI - Free Report) . Shares have added about 13.8% 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 the most recent earnings report in order to get a better handle on the important drivers.

Navient Q3 Earnings Beat Estimates as Provisions Fall

Navient reported third-quarter 2020 core earnings per share of 99 cents that surpassed the Zacks Consensus Estimate of 78 cents. Also, the bottom line was above the year-ago quarter figure of 62 cents.

Core earnings excluded the impacts of certain other one-time items, including mark-to-market gains/losses on derivatives along with goodwill and acquired intangible asset amortization, and impairment.

Third-quarter results of Navient were supported by a rise in net interest income (NII). Also, a fall in expenses and provisions were tailwinds. However, private education loans declined. Moreover, a year-over-year fall in fee income was an undermining factor.

GAAP net income for the quarter was $207 million or $1.07 per share compared with $145 million or 63 cents in the year-ago quarter.

NII Increases, Provisions Fall (on Core Earnings Basis)

NII increased 3.9% year over year to $321 million.

Non-interest income declined 6.8% year over year to $179 million. The fall was mainly attributed to lower servicing and other revenues, partly offset by higher asset recovery and business processing income.

Provision for loan losses fell 78.1% to $14 million.

Total expenses declined 7.1% from the year-ago quarter to $235 million. Lower operating expenses mainly led to the fall.

Segment Performance

Federal Education Loans: The segment generated core earnings of $137 million, up 7% year over year. Higher NII and a fall in expenses were tailwinds.

As of Sep 30, 2020, the company’s FFELP loans were $59.6 billion, down 1.8% sequentially.

Consumer Lending: The segment reported core earnings of $110 million, up 39% year over year. Lower provisions and rise in revenues were positives.

Net interest margin was 3.24%, down 21 basis points (bps).

Private education loan delinquencies of 30 days or more of $499 million were down from $530 million in the prior-year quarter.

As of Sep 30, 2020, the company’s private education loans totaled $21.3 billion, down nearly 1% from the prior quarter. Also, Navient originated $1.3 billion of private education refinance loans in the quarter.

Business Processing: The segment reported core earnings of $16 million compared with $9 million in the year-ago quarter. Higher revenues led to the upside.

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 $2.3 billion in term ABS. Notably, it had $1.8 billion of cash as of Sep 30, 2020.

Capital-Deployment Activities

In the third quarter, the company paid out $31 million in common stock dividends. Also, it repurchased $65 million of common shares during the quarter. As of Sep 30, 2020, it had $600 million of remaining share-repurchase authority.

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 mid to high 90’s bps. Also, charge-off rate in the segment is expected to be 0.1-0.12%.

Net interest margin in consumer lending segment is expected to be 3.15-3.20%. Also, charge-off rate in the segment is estimated to be 1-1.2%.
In Business Processing segment EBITDA margins in the mid to high teens is expected.

EPS is expected to be in the range of $3.25-$3.28. Also, return on equity is likely to be in high 20s.

The company targets to achieve an efficiency ratio of approximately 50%. Further, adjusted tangible equity ratio is expected to be between 4.5% to 5%.    

As borrowers continue to exit forbearance, management expects both charge-offs and delinquencies to increase beginning in the fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Navient has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Navient has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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