Navient Corporation (NAVI - Free Report) started operating independently as a loan management, servicing and asset recovery company, following the split of SLM Corporation into two distinct publicly-traded entities in April 2014. Navient continues to be the biggest portfolio holder of education loans insured or guaranteed under the Federal Family Education Loan Program (FFELP), as well as Private Education Loans.
The company remains under revenue pressure as following the 2010 reform law all federal student loans are originated through the Direct Student Loan Program of the U.S. Department of Education. Owing to this legislation, Navient’s interest income on its FFELP loan portfolio and fee-based revenues from the same are expected to gradually drop as existing FFELP loans are paid down, refinanced or repaid following default by guarantors.
Further, the U.S. student loan industry is currently under heightened regulatory scrutiny over alleged anti-consumer practices. Navient, which services more than $300 billion in student loans for more than 12 million customers, is currently struggling with several litigation issues.
Nevertheless, keeping headwinds in the sidelines, the stock has plenty of upside.
Why Navient is an Attractive Buy
Earnings Per Share Strength: Navient’s long-term (three-five years) estimated EPS growth rate of 6% promises rewards for investors, over the long run. Also, it recorded an average positive earnings surprise of 3.71%, over the trailing four quarters.
Inorganic Growth Routes: Navient seems on track with its initiatives which lays the foundation for independent growth. Since 2015, the company has been strengthening its asset recovery and business process outsourcing capabilities through acquisitions. In 2015, Navient acquired Hendersonville, TN-based Xtend Healthcare and Gila LLC. Moreover, in 2017, it acquired the educational loan portfolio of JPMorgan (JPM - Free Report) , and established its presence in the municipal and toll services market through the Duncan Solutions acquisition. Also, another firm Earnest — a financial technology and education-finance company serving consumers unable to get finance from traditional banks — was acquired.
Superior Return on Equity (ROE): Navient’s ROE of 13.91%, as compared with the industry average of 12.51%, reflects the company’s commendable position over its peers.
Favorable Zacks Rank: Navient currently carries a Zacks Rank #2 (Buy). This has been driven by the upward estimate revisions, for the last 30 days. For 2018 and 2019, the Zacks Consensus Estimate moved up slightly to $1.88 and $1.93, respectively.
Share Price Movement: Navient’s shares have gained slightly over the past year compared with 2.5% growth recorded by the industry.
Stock is Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Considering the above positive traits, we believe investing in Navient should not disappoint you.
Stocks to Consider
Commerce Bancshares, Inc. (CBSH - Free Report) has been witnessing upward estimate revisions for the last 90 days. Additionally, the stock has jumped more than 11% in the past three months. It currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Old Second Bancorp, Inc. (OSBC - Free Report) has been witnessing upward estimate revisions for the last 90 days. Also, the company’s shares have risen nearly 6.1% in three months’ time. It holds a Zacks Rank of 2, at present.
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