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Why Is Navient (NAVI) Down 7.2% 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 lost about 7.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Navient Q1 Earnings Surpass Estimates, NII Falls Y/Y

Navient reported first-quarter 2022 adjusted core earnings per share of 90 cents, surpassing the Zacks Consensus Estimate of earnings per share of 76 cents. The reported figure was lower than the prior-year quarter’s $1.71.

A fall in net interest income (NII) and non-interest income hindered the results. Also, a rise in provisions was a headwind. Nonetheless, lower expenses alleviated the bottom-line pressure.

Navient’s net income was $255 million compared with $370 million in the prior year.

NII & Expenses Decrease, Provisions Rise

NII declined 7% year over year to $337 million in first-quarter 2022.

Interest income from private education loans declined 13% to $276 million. Also, the reported figure lagged the Zacks Consensus Estimate of $329.5 million.

Non-interest income fell 27% to $223 million. The downside stemmed from a decline in all components.

Provision for loan losses was expenses of $16 million against a benefit of $87 million witnessed in the prior-year quarter.

Total expenses declined 21% to $212 million. Lower operating expenses, and a rise in goodwill and acquired intangible asset impairment and amortization expenses primarily resulted in the fall.

Segmental Performance

Federal Education Loans: The segment generated a net income of $107 million, down 4.5% year over year.

As of Mar 31, 2022, the company’s net FFELP loans were $51 billion, down 3.1% sequentially.

Consumer Lending: The segment reported a net income of $79 million, which decreased 66.2 % from the year-ago quarter. Higher provision for loan losses affected the segment’s performance.

Private education loan delinquencies of 30 days of $810 million were up from the prior-year quarter’s $460 million.

As of Mar 31, 2022, the company’s net private education loans totaled $20 billion, down marginally from the prior quarter. In addition, Navient originated $941 million of private education refinance loans in the reported quarter.

Business Processing: The segment reported a net income of $14 million, down 46.2% from $26 million recorded in the year-ago quarter.

Liquidity

In order to meet liquidity needs, Navient expects to utilize various sources, including cash and investment portfolio, the predictable operating cash flows provided by operating activities, the repayment of principal on unencumbered student-loan assets, and distributions from securitization trusts.

It might also draw down on the secured FFELP Loan and Private Education Loan facilities, issue term asset-backed securities (ABS), enter additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

Notably, the company had $708 million of cash and cash equivalents as of Mar 31, 2022.

Capital Deployment Activities

In the first quarter, the company paid out $25 million in common stock dividends.

In the reported quarter, Navient repurchased 6.2 million shares of common stock for $115 million. As of Mar 31, 2022, there was $885 million of the remaining share-repurchase authority.

2022 Outlook

Non-GAAP adjusted core EPS is expected in the range of $3.2-$3.3.

Non-GAAP core earnings ROE is expected in mid to high teens.

Non- GAAP core earnings efficiency ratio is projected to be nearly 54%.

Management expects the non-GAAP adjusted tangible equity ratio to be nearly 6%.

For the Federal Education Loan segment, the company anticipates NIM in mid-90s and the charge-off rate to be less than 0.10%.

For the Consumer Lending segment, management estimates NIM in the range of 2.55-2.65%. The charge-off rate is expected in the range of 1.5-2%.

Non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) margin for the Business Processing segment is projected in high teens.

 

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted 6.06% due to these changes.

VGM Scores

At this time, Navient has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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