Navient Corporation NAVI is scheduled to report third-quarter 2016 results on Oct 18.
The Wilmington, DE-based loan management, servicing and asset recovery company’s second-quarter 2016 core earnings outpaced the Zacks Consensus Estimate and improved year over year as well. Results were aided by lower provision for credit losses and improved delinquencies. On the down side, the quarter recorded reduced net interest income and non-interest income as well as higher expenses.
However, our quantitative model doesn’t call for an earnings beat this time around. Here is why:
A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) – for increasing chances of an earnings beat. 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 47 cents.
Zacks Rank: Navient’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Factors to Influence Q3 Results
Benefit from continued new acquisitions of student loans: The student loans market has turned into one of the biggest consumer debt markets of the nation. Though conditions in the financial markets have been challenging lately, Navient’s consistent efforts to acquire student loan portfolios, both Federally Guaranteed Student Loans (FFELP) as well as Private Education Loans, should lend some support to quarterly results.
Growth in asset recovery revenues: The company’s efforts to grow asset recovery revenues, with focus beyond student loan platforms, should support revenues at its business services segment. The company is likely to continue benefiting from its previous acquisitions of asset recovery and business process outsourcing firms.
However, asset recovery revenues continue to be threatened by the Bipartisan Budget Act of 2013. The act, which became effective in Jul 2014, called for lowering the fees payable to guaranty agencies for recovering defaulted FFELP loans.
Cost-control efforts: Overall expenses should remain stable. Further, the company’s several ongoing initiatives to improve efficiency should ease expense burden.
Legal and regulatory headwinds persist: The U.S. student loan industry is currently under heightened regulatory scrutiny over alleged anti-consumer practices. Navient, which services over $300 billion in student loans for more than 12 million customers, is under regulatory claims and litigation burden owing to its practices in handling loans. Hence, the quarter might reflect higher related legal reserves.
Navient’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 47 cents per share over the last seven days.
Stocks That Warrant a Look
Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.
BlackRock, Inc. BLK has an Earnings ESP of +0.20% and carries a Zacks Rank #2. The company is slated to release results on Oct 18. You can see the complete list of today’s Zacks #1 Rank stocks here.
Raymond James Financial, Inc. RJF has an Earnings ESP of +2.04% and carries a Zacks Rank #2. The company is slated to release results on Oct 26.
Lazard Ltd. LAZ has an Earnings ESP of +3.90% and carries a Zacks Rank #2. It is scheduled to report results on Oct 27.
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