It has been about a month since the last earnings report for Navient (NAVI). Shares have lost about 8% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Navient Q1 Earnings & NII Top Estimates, Provisions Dip
Navient reported first-quarter 2023 adjusted earnings per share of $1.06, surpassing the Zacks Consensus Estimate of 88 cents. The reported figure compares favorably with the year-ago quarter’s 90 cents.
A fall in core NII and total other income has hindered the results. Nonetheless, a decrease in expenses was a tailwind.
Navient’s GAAP net income was $111 million, down from $255 million in the prior-year quarter.
NII & Expenses Decrease
Core NII declined 8.3% year over year to $253 million in the first quarter but surpassed the Zacks Consensus Estimate of $230.6 million.
Total other income plunged 61% to $88 million. The downside stemmed from a decrease in all components.
Provision for loan losses was a benefit of $1 million against expenses of $16 million in the prior-year quarter.
Total expenses decreased 9% year over year to $192 million.
Quarterly Performance of Segments
Federal Education Loans: The segment generated a net income of $87 million, down year over year from $107 million.
As of Mar 31, 2023, the company’s net FFELP loans were $42.14 billion, down 3.2% sequentially.
Consumer Lending: The segment reported a net income of $110 million, which increased from $79 million in the year-ago quarter. Benefits from the provision for loan losses aided the segment’s performance.
The private education loan delinquency rate greater than 30 days was 4.5% compared with 4% in the prior-year quarter.
As of Mar 31, 2023, the company’s private education loans were $18.27 billion, down 2.4% from the prior quarter. In addition, Navient originated $135 million of private education refinance loans in the reported quarter.
Business Processing: The segment reported a net income of $4 million, plunging from $14 million in the year-ago quarter.
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 may also draw down on the secured FFELP Loan and Private Education Loan facilities, issue term asset-backed securities (ABS), enter additional Private Education Loan and ABS repurchase facilities or issue additional unsecured debt.
Notably, it had $570 million of total unrestricted cash and liquid investments as of Mar 31, 2023.
Capital Deployment Activities
In the first quarter, the company paid out $21 million in common stock dividends. In the reported quarter, Navient repurchased shares of common stock for $85 million. As of Mar 31, 2023, there was $515 million of the remaining share-repurchase authority.
Adjusted core EPS (excluding restructuring and regulatory charges) is expected to be $3.15-$3.30.
Core earnings ROE is expected in the mid-teens range. The core earnings efficiency ratio is projected to be 55-58%.
Management expects the adjusted tangible equity ratio to be 8-9%.
For the Federal Education Loan segment, the company anticipates NIM of 1-1.1% and the charge-off rate to be 0.10-0.20%.
For the Consumer Lending segment, management estimates a NIM of 2.80-2.90%. The charge-off rate is expected to be 1.5-2%.
Non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) margin for the Business Processing segment is projected in the high-teens.
Management estimates to repurchase shares aggregating $225 million for the remaining three quarters of 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
Currently, Navient has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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.
Navient has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Navient is part of the Zacks Financial - Consumer Loans industry. Over the past month, Ally Financial (ALLY), a stock from the same industry, has gained 1.2%. The company reported its results for the quarter ended March 2023 more than a month ago.
Ally Financial reported revenues of $2.1 billion in the last reported quarter, representing a year-over-year change of -1.6%. EPS of $0.82 for the same period compares with $2.03 a year ago.
For the current quarter, Ally Financial is expected to post earnings of $0.89 per share, indicating a change of -49.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Ally Financial. Also, the stock has a VGM Score of B.
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