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Why Is Navient (NAVI) Down 9.7% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Navient CorporationNAVI . Shares have lost about 9.7% in the past month, underperforming the market and the DJIA in that time frame.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Navient Q1 Earnings Lag on Lower Net Interest Income

Navient's first-quarter 2017 adjusted core EPS of $0.36 missed the Zacks Consensus Estimate of $0.43. Also, the figure came below the year-ago quarter tally. The reported EPS for the quarter includes the effect of regulatory-related costs.

Core earnings excluded the impact of losses from the derivative accounting treatment. It also excluded the impact of certain other one-time items, including unrealized, mark-to-market gains, losses on derivatives, and goodwill and acquired intangible asset amortization and impairment.

Results of Navient reflect reduced net interest income. However, on a positive note, the company recorded a decline in expenses and lower provision for credit losses in the quarter.

Net income came in at $107 million in the first quarter, down from $147 million recorded in the prior-year quarter.

GAAP net income for the quarter was $188 million or $0.30 per share compared with $181 million or $0.53 per share in the year-ago quarter.

Performance in Detail (on core earnings basis)

Net interest income declined 19.7% year over year to $334 million.

However, non-interest income inched up 2.8% year over year to $181 million. Asset recovery revenues rose while servicing revenues declined.

Further, provision for credit losses decreased 3.6% year over year to $107 million.

Total expenses declined 3.6% year over year to $238 million.

Segment Performance

Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $51 million, down 22.7% year over year. The underperformance was mainly attributable to lower net interest income owing to amortization of the portfolio and also a decrease in net interest margin (NIM), partially offset by a decline in operating expenses.

FFELP loan spread contracted 3 basis points (bps) year over year to 0.86%.

During the quarter, Navient acquired FFELP loans of $686 million. As of Mar 31, 2017, the company's FFELP loans were at $85.3 billion, down 10.1% year over year.

Private Education Loans: The segment reported core earnings of $35 million, down 42.6% year over year. The decrease was due to lower net interest income owing to amortization of the portfolio and lower NIM, partially offset by reduced provision for loan losses.

Total delinquency rate came in at 6.8%, up 6 bps. Charge-off rate of 2.6% of average loans in repayment was 2 bps higher on a year-over-year basis. Student loan spread contracted 37 bps year over year to 3.33%.

As of Mar 31, 2017, the company's private education loans totaled $22.6 billion, down 11.4% year over year.

Business Services: The segment reported core earnings of $77 million, up 2.7% year over year.

Currently, Navient services student loans for over 12 million customers. This includes 6.1 million customers on behalf of the U.S. Department of Education.

Other: The segment reported a net loss of $56 million compared with a net loss of $55 million in the prior-year quarter.

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 may also issue term asset-backed securities (ABS).

During the reported quarter, Navient issued $1.9 billion in FFELP Loan ABS and $843 million in unsecured loan debt. Also, the company retired or repurchased $568 million of senior unsecured debt during the quarter.

Share Repurchase

During the quarter, Navient repurchased 7.4 million shares of common stock for $110 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been four downward estimate revisions in the last two months. In the past month, the consensus estimate has declined 6.5% due to these changes.

Navient Corporation Price and Consensus

Navient Corporation Price and Consensus | Navient Corporation Quote

VGM Scores

At this time, the stock has a poor Growth Score of 'F'. However, its Momentum is doing a bit better with a 'C'. 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting in-line return from the stock in the next few months.

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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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