It has been about a month since the last earnings report for Navient (NAVI - Free Report) . Shares have added about 7.6% 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 Q1 Earnings Lag Estimates as Revenues Fall
Navient reported first-quarter 2020 adjusted core earnings per share of 51 cents that missed the Zacks Consensus Estimate of 72 cents. Also, the bottom line was lower than the year-ago quarter figure of 58 cents.
Core earnings excluded the impacts of certain other one-time items, including restructuring and regulatory-related expenses.
First-quarter results of Navient were affected by lower net interest income and fee income. Also, rise in provisions was a headwind. However, private education loans rose. Moreover, year-over-year stable expenses provided some support.
GAAP net loss for the quarter was $106 million or 53 cents per share against net income of $128 million or 52 cents per share in the year-ago quarter.
NII and Fee Income Fall, Provisions Rise (on core earnings basis)
Net interest income (NII) dipped 1% year over year to $297 million.
Non-interest income declined 16.7% to $175 million. The fall was mainly attributed to lower asset recovery and business processing along with servicing revenues.
Provision for loan losses climbed nearly 25% to $95 million.
Total expenses remained almost stable at $256 million compared with the year-ago quarter. Lower operating expenses were offset by rise in restructuring costs.
Federal Education Loans: The segment generated core earnings of $119 million, down 6.3% year over year. Lower revenues, partly muted by a fall in expenses, posed as a headwind.
As of Mar 31, 2020, the company’s FFELP loans were $62.5 billion, down 3.2% sequentially.
Consumer Lending: The segment reported core earnings of $54 million, down 16.9% year over year. Higher provisions and lower revenues were the negatives. Net interest margin was 3.31%, down 9 basis points.
Private education loan delinquencies of 30 days or more of $769 million were down $372 million from the prior-year quarter.
As of Mar 31, 2020, the company’s private education loans totaled $22.3 billion, up marginally from the prior quarter.
Business Processing: The segment reported core earnings of $2 million compared with $10 million in the year-ago quarter. Lower expenses were partially offset by a fall in revenues.
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 $1.9 billion in term ABS and $700 million in unsecured debt.
Capital Deployment Activities
In the first quarter, the company repurchased 23 million common shares.
2020 Outlook (core earnings basis i.e., excluding expenses associated with regulatory costs and restructuring expenses)
Management expects defaults in both private and FFELP portfolios to be significantly lower in 2020 than that expected at the start of the year.
The company expects charge-offs during the remaining months of 2020 to be lower than 2019, given the increased use of payment relief options.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -52.34% due to these changes.
At this time, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Navient has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.