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What to Expect From Navient (NAVI) This Earnings Season?

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Navient Corporation (NAVI - Free Report) is scheduled to report first-quarter 2022 results on Apr 26, after market close. Although the company’s earnings are expected to display year-over-year decline, revenues might have increased.

This Wilmington, DE-based lender’s fourth-quarter 2021 earnings missed the Zacks Consensus Estimate, primarily due to a fall in net interest income (“NII”) and non-interest income, as well as higher expenses. A rise in provisions was another headwind.

NAVI has a decent earnings surprise history. Navient’s earnings outpaced estimates in three of the trailing four quarters, missing the mark in one. The average earnings surprise was -3.4%.

Navient Corporation Price and EPS Surprise

Navient Corporation Price and EPS Surprise

Navient Corporation price-eps-surprise | Navient Corporation Quote

NAVI’s activities in the to-be-reported quarter were inadequate to gain analysts’ confidence. As a result, the Zacks Consensus Estimate for first-quarter earnings of 76 cents has moved 7.3% downward in the past week. The figure indicates a 55.6% plunge from the year-ago quarter’s reported figure. However, the Zacks Consensus Estimate of $329.5 million for NII suggests an 11.7% rise from the prior-year quarter.

Key Factors to Note

Loans: The ongoing economic expansion is expected to have supported the lending environment in the quarter under review. Per the Fed’s latest data, the consumer lending scenario was strong in the quarter. As the economy recovers and schools return to on-campus operations from remote, the company is expected to have seen student loan growth acceleration. This factor, besides improving direct lending originations, is likely to have driven Navient’s overall loan balances.

However, the extension of the federal payment moratorium might have decreased student loan refinancing volumes for the company.

NII: In March, the Federal Reserve hiked short-term interest rates. However, the overall prevailing low-interest-rate environment and pay downs of the non-refinance loan portfolio remained headwinds. These are likely to have affected Navient’s NII and net interest margin. The consensus estimate for NII for the first quarter is pegged at $284 million, calling for a sequential decline of 9.6%.

Non-Interest Income: Weakness in fee income is expected to have kept Navient’s top line under pressure in the to-be-reported quarter. The pandemic-related contract expirations and lower vaccine administration services are expected to have continued to abate and reduce revenues in the Business Processing segment.

Navient transferred all of its Department of Education (“ED”) servicing contracts to Maximus in fourth-quarter 2021. Since Navient is no longer a party to the ED servicing contract, lost servicing revenues related to the sale might have affected its servicing revenues in the first quarter.

The consensus estimate for servicing revenues, and asset recovery and business processing revenues reflects a sequential fall of 20.6% and 19.5% to $14.3 million and $99 million, respectively. The Zacks Consensus Estimate of $115 million for total fee income indicates decline of 30.3% from the prior quarter.

Expenses: Navient’s initiatives to become a technologically-advanced company and its aim to expand services outside the education industry are expected to have led to elevated expenses, thereby affecting bottom-line growth. Further, litigation charges paid by the company are expected to have deterred its results in the first quarter.

Key Developments During the Quarter

In January, Navient reached agreements with 40 state attorneys general to work out its previously disclosed multi-state litigation and investigations.

Per the agreement, Navient will cancel $1.7 billion of defaulted private education loan balances owed by nearly 66,000 borrowers. These loans originated between 2002 and 2010 and were later defaulted and charged off.

Additionally, the company will make a one-time payment of around $145 million to the states.

Here is What Our Quantitative Model Predicts:

The proven Zacks model does not predict an earnings beat for Navient this time around. This is because NAVI does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Navient is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3 (Hold).

Stocks That Warrant a Look

Discover Financial Services (DFS - Free Report) and Independent Bank Corporation (IBCP - Free Report) are a couple of stocks that you might want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

DFS is scheduled to release first-quarter results on Apr 27. DFS currently has a Zacks Rank #3 and an Earnings ESP of +1.14%.

The Zacks Consensus Estimate for DSF’s first-quarter earnings has moved 1.1% upward over the past 30 days.

IBCP is scheduled to release first-quarter results on Apr 26. IBCP currently has a Zacks Rank #2 (Buy) and an Earnings ESP of +10%.

The Zacks Consensus Estimate for IBCP’s first-quarter earnings has remained flat over the past 30 days.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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