What to Expect from Navient (NAVI) This Earnings Season? - Analyst Blog

Navient CorporationNAVI is scheduled to report its first-quarter 2015 results on Tuesday, Apr 21, after the markets close.

Navient, the loan management, servicing and asset recovery company formed through the strategic split of Sallie Mae in Apr 2014, had reported fourth-quarter 2014 core earnings of 53 cents per share, at par with the Zacks Consensus Estimate. Core earnings excluded the impact of the financial results of the consumer banking business for periods prior to the spin-off as well as spin-off related restructuring and reorganization expenses. The figure also excluded the impact of certain other one-time items.

Fourth-quarter results were aided by lower expenses as well as lower provisions for loan losses, partially offset by reduced asset recovery revenues and net interest income. The Private education loans segment had exhibited an improvement.

Will Navient miss on earnings this quarter? Let's see how things have shaped up prior to the announcement.

What to Expect

Navient's loan portfolio is predicted to benefit from a rise in consumer demand, as the pickup in economy has increased the level of consumer confidence. Notably, The Consumer Confidence Index improved to 101.3 in Mar 2015 from 98.8 in February.

During the quarter, consumer loans across the U.S. banks have grown modestly at 4% year over year, rising 4.5% in the last week of the quarter.

Such uptrend in loan balances is expected to get reflected in the form of higher revenues in Navient's FFELP (Federal Family Education Loan Program) Loans as well as Private Education Loans segment. Additionally, both these segments are projected to see increased cash flows; as consumer credit metrics continue to improve, supported by lower funding costs.

However, revenues from the Business Services segment continue to face threat from the Bipartisan Budget Act of 2013, which calls for lower fees payable to guaranty agencies for recovering defaulted FFELP loans commencing on Jul 2014. On the other hand, we note scope for higher asset recovery revenues, driven by the acquisition of Texas-based asset recovery and business process outsourcing firm, Gila LLC, in Mar 2015.

The company expects asset recovery revenues in the range of $75-$80 million for the quarter.

Overall, we believe, revenues at Navient will trend higher in the first quarter of 2015.

However, regulatory and servicing costs will likely act as headwinds increasing the quarterly expense level, partially offset by lower spin-off-related costs.

Provisions are expected to remain low due to declining delinquencies, which have led to a fall in expectations for future net charge-offs, and subsequently resulted in lower demand for provision.

Activities of Navient during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter declined 3.8% to 50 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Navient is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Navient is +0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 53 cents per share.

Zacks Rank: Navient's Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Popular, Inc. BPOP has an Earnings ESP of +9.86% and carries a Zacks Rank #1. It is scheduled to report results on Apr 27.

SVB Financial Group SIVB , with an Earnings ESP of +2.24% and a Zacks Rank #1, will report results on Apr 23.

Primerica, Inc. PRI has an Earnings ESP of +8.54% and a Zacks Rank #2. It is slated to report on May 6.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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