Navient Corporation (NAVI) is scheduled to report its third-quarter 2014 results on Wednesday, Oct 15, after the market closes.
Following the separation of SLM Corporation into two distinct publicly-traded entities on Apr 30, 2014, Navient started operating independently as a loan management, servicing and asset recovery company.
The separation came as a part of several initiatives undertaken by management in 2013 to enhance shareholder value. Other initiatives included sale of residual interests in several Federally Guaranteed Student Loans (FFELP) securitization trusts, divestiture of two subsidiaries and debt repurchases.
A Look Back into the Q2 Results
Following the strategic split, Navient reported its standalone Q2 financials. Core earnings were 56 cents per share, outpacing the Zacks Consensus Estimate by a penny. Core earnings excluded the impact of the financial results of the consumer banking business for periods prior to the spin-off as well as the spin-off related restructuring and reorganization expenses. It also excluded the impact of certain other one time items.
In Jun 2014, Navient obtained extension of its servicing contract to five more years from the U.S. Department of Education. Under this contract, the company services around 5.8 million accounts.
What Management Expects?
In the second quarter earnings presentation, Navient stated that for full-year 2014, the company expects core earnings per share of $2.05. It also expects FFELP loan spread to remain in the high 90’s for the later part of 2014, which stood at 0.98% at the end of the second quarter. Further, it expects Private Education Loan spread to be in the range of 4.0–4.1% for the later part of 2014. Private Education Loan spread was 4.10% at the end of the second quarter.
While nothing was specifically referred for the third quarter results, we believe the upcoming release will show progress toward achieving its full-year targets.
Activities of Navient during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 3.8% to 51 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Navient is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Navient is +1.96%. This is because the Most Accurate estimate of 52 cents is above the Zacks Consensus Estimate of 51 cents per share.
Zacks Rank: Navient’s Zacks Rank #4 (Sell), however, lowers the predictive power of ESP. We caution investors against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement.
Stocks That Warrant a Look
Here are some stocks in the finance sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
BB&T Corporation (BBT) has an earnings ESP of +1.41% and carries a Zacks Rank #3. It is scheduled to report results on Oct 16.
Capital One Financial Corporation (COF) has an earnings ESP of +2.08% and carries a Zacks Rank #2. It is scheduled to report results on Oct 16.
CIT Group Inc. (CIT) has an earnings ESP of +3.37% and a Zacks Rank #3. It is slated to report results on Oct 28.
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