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Strategic Moves Support Navient (NAVI), High Debt Woes Prevail

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Navient Corporation (NAVI - Free Report) continues to benefit from its strong position in the educational loan industry and cost-control efforts. Further, the company’s plans to bolster the top line through new loan originations and strengthening of the business processing segment is commendable. However, regulatory issues and high debt level remain concerns.

Prudent expense management and strategic moves have aided the company to appreciate 60.2% in the past six months compared with 56.6% growth recorded by the industry.

The company’s earnings estimate has remained unrevised for the current year, over the past 60 days. As a result, the stock carries a Zacks Rank #3 (Hold), at present.

Navient continues to be the biggest portfolio holder of Private Education Loans and education loans insured or guaranteed under the FFELP. Also, its efforts to fortify the asset recovery and business process outsourcing capabilities are likely to aid the top line. In addition, the company continues to deploy its technology platform and digital marketing tools to attract originations that bode well for financials.

Moreover, Navient’s involvement in inorganic growth strategies to improve its business seems impressive. In 2017, the company acquired Earnest and Duncan Solutions, which helped the lender extend its reach beyond educational loans. Thus, its efforts to tap growth opportunities are likely to enhance the business.

Furthermore, the stock seems undervalued as its price-to-book (P/B) and price-to-earnings (P/E) (F1) ratios are below the respective industry averages. Additionally, it has a Value Score of A.

However, the company faces re-pricing risks related to its assets. This is because interest earned on FFELP loans and private education loans is primarily indexed to 1-month LIBOR rates and either 1-month LIBOR rates or 1-month Prime rates, respectively, whereas cost of funds is primarily indexed to 3-month LIBOR rates.

Apart from this, a high level of debt makes its capital-deployment activities unsustainable.

Stocks to Consider

Goldman Sachs (GS - Free Report) has witnessed upward earnings estimate revisions for 2021 over the past 60 days. This Zacks #1 Ranked stock has also gained 43.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Morgan Stanley’s (MS - Free Report) current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have appreciated 55.1% over the past six months. At present, it carries a Zacks Rank of 2.

Evercore Inc (EVR - Free Report) has recorded upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #2 Ranked stock has surged 109.42% in six months’ time.

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