Navient (NAVI) Faces Top-Line Pressure, High Costs A Woe

On Sep 15, we issued an updated research report on Navient (NASDAQ:NAVI) . The company is currently facing pressure on revenues due to lack of sources and rising interest rates. Mounting expenses remain an added concern. However, the company’s inorganic growth strategies might alleviate some pressure.

Shares of Navient have lost 15.1% year to date compared with 5.5% decline of the industry it belongs to.

The Zacks Consensus Estimate for current-year earnings has been revised 1.1% downward over the past 90 days. The stock carries a Zacks Rank #4 (Sell).

Navient’s top line remains under pressure due to the declining FFELP (Federal Family Education Loan Program) loan portfolio. Interest earned on FFELP loans is primarily indexed to one-month LIBOR rates, whereas the cost of funds is mainly indexed to three-month LIBOR rates. In the rising interest rate environment, this difference in timing may create pressure on net interest margin for FFELP loans. On the other hand, rise in interest rates might also lower Navient’s floor income.

Escalating expenses is another key concern for Navient. After separation from Sallie Mae (NASDAQ:SLM) , Navient stands liable for payment of all regulatory orders, except the penalty charges that are directly imposed on Sallie Mae. Also, ongoing litigation issues remain an added concern as they might result in high legal costs.

Lately, Navient has been focused on opportunities that would help boost its business. In April 2017, its acquisition of educational loan portfolio from JPMorgan Chase (NYSE:JPM) consisting of federally guaranteed student loans and whole private education loans was encouraging. Also, this deal is expected to contribute 9 cents to earnings per share in 2017.

Stock to Consider

Credit Acceptance Corporation (NASDAQ:CACC) sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for this company’s current year earnings has been revised 6.5% upwards over the last 60 days. Further, its shares have gained 34.1% over the year.

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