On Wednesday, Morgan Stanley maintained its Equalweight rating and $15.00 price target on shares of Navient (NASDAQ:NAVI) Corporation (NASDAQ:NAVI). The firm's stance comes in light of Navient's recent decision to sell its Healthcare business, Xtend. The transaction is viewed as advantageous for the company's financials, offering a substantial increase in book value per share (BVPS) and tangible book value per share (TBVPS).
The sale of Xtend is expected to yield a favorable outcome, extracting significant value at 2.7 times BVPS and approximately 16 times TBVPS. This is notably higher than Navient's current trading figures, which are at 0.6 times BVPS and 0.8 times TBVPS. Analysts estimate that the deal could result in a 13% rise in TBVPS and a 6% increase in BVPS for Navient, assuming a 24% tax rate on the gains.
Navient's strategy to reduce expenses is further underscored by this move. Earlier in the year, management had outlined potential cost savings of $400 million from the exit of its Business Processing Solutions businesses. These savings would be partially balanced by an estimated $320 million in lost revenues. The company's previous decision to outsource servicing to MOHELA already set the stage for potential reductions in expenses, and the sale of Xtend reinforces this trajectory as Navient progresses into 2025 and subsequent years.
The analyst highlighted that the deal not only offers an attractive valuation but also aligns with Navient's strategic initiatives to streamline operations and reduce its expense footprint. This development is seen as a step forward in the company's efforts to enhance shareholder value through strategic divestitures and operational efficiency.
In other recent news, Navient Corporation has made significant strides in its strategic restructuring efforts. The company reported during its second quarter 2024 earnings call that it has updated its full-year 2024 earnings per share (EPS) guidance to $1.35 to $1.55. This revision reflects the impact of strategic initiatives such as a servicing outsourcing agreement with MOHELA and ongoing discussions for the divestment of its Business Processing Solutions division.
Furthermore, Navient has agreed to sell its Healthcare Services (NASDAQ:HCSG) business, Xtend Healthcare, to CorroHealth for a cash consideration of $365 million. This move is part of Navient's strategic efforts to streamline its operations and focus on its core business segments. About 950 Xtend employees are expected to transition to CorroHealth as part of the deal.
Moreover, Navient is in discussions regarding the potential sale of its Government Services businesses. The company is also exploring opportunities to deepen relationships with students and college graduates through its Earnest business. These are among the recent developments that investors should be aware of.
InvestingPro Insights
As Navient Corporation (NASDAQ:NAVI) continues to navigate its strategic divestitures, real-time data and insights from InvestingPro provide a more nuanced perspective on the company's financial health and market position. With a market capitalization of approximately $1.62 billion and a P/E ratio that stands at 10.62, Navient presents an interesting case for investors. The adjusted P/E ratio for the last twelve months as of Q2 2024 is even more favorable at 8.8, suggesting a potentially undervalued stock in comparison to earnings.
InvestingPro Tips highlight that management's aggressive share buyback strategy could signal confidence in the company's value proposition. The company's ability to maintain dividend payments for 14 consecutive years, coupled with a dividend yield of 4.33% as of the latest data, offers an attractive return for income-focused investors. Notably, Navient's liquid assets exceed its short-term obligations, indicating a solid liquidity position that could reassure investors of the company's ability to meet its immediate financial commitments.
For investors seeking a deeper dive into Navient's financials and forecasts, there are additional InvestingPro Tips available that could provide further insights into the company's anticipated sales and net income trajectories, as well as analyst sentiment. It's worth noting that while some analysts have revised their earnings downwards for the upcoming period, Navient has been profitable over the last twelve months, and profitability is expected to continue this year.
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