The price of asset management and business processing services provider Navient Corporation’s (NAVI) shares has more than doubled since hitting its 52-week low of $5.92 in April 2020. The company was adversely affected by the pandemic due to student loan forbearance and a low-interest rate environment. However, the situation has been improving and loans in forbearance are gradually decreasing with the reopening of the economy.
The stock has rallied 103.6% over the past nine months to close yesterday’s trading session at $14.31, after hitting its all-time high of $14.53. However, the stock still looks undervalued at its current price level.
In terms of its forward non-GAAP price/earnings ratio, NAVI’s 4.49x is 64.8% lower than the industry average 12.76x. And in terms of its forward price/sales ratio, the stock’s 2.36x is 28.3% lower than the industry average 3.29x.
So, here are the factors that we think could influence NAVI’s performance in the coming months:
NAVI operates through four segments—Federal Family Education Loan Program (FFELP) Loans, Private Education Loans, Business Services and Other. Its FFELP segment was affected by the pandemic as several student loans received forbearance status. President Joe Biden also cancelled $2.3 billion of student loans for more than 110,000 student loan borrowers. But his focus has been on cancelling federal student loans and not private ones. So, over the long-term, NAVI is expected to see improvement in its FFELP segment as lending conditions improve.
Furthermore, the company provides additional business processing services to a range of clients, including federal agencies, state and local governments, healthcare systems and other healthcare providers and municipalities.
NAVI’s net interest income in the Federal Educations Loans segment increased 9.5% year-over-year to $162 million for the fourth quarter ended December 31. Its net income in the Consumer Lending Segment also increased 21.3% year-over-year to $108 million. Its revenue in the Business Processing Segment increased 57.6% year-over-year to $93 million. And the company’s adjusted EPS came in at $0.97 for the quarter, up 44.8% year-over-year. In fact, NAVI surpassed a consensus EPS estimate in three of the trailing four quarters.
Favorable Analyst Sentiment
NAVI has an average broker rating of 1.5. Also, of 10 Wall Street analysts that have rated the stock, four rated it Strong Buy and two rated it Buy.
POWR Ratings Reflect Favorable Outlook
NAVI has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. NAVI’s lower-than-industry valuation ratios helped it earn a B grade for Value.
It also has a B grade for Momentum. This is in sync with its 45.7% gains over the past three months and 15.6% returns over the past month.
Click here to see the additional POWR Ratings grades for NAVI (Growth, Stability, Sentiment, and Quality).
NAVI is ranked #10 of 104 stocks in the D-rated Financial Services (Enterprise) industry.
If you’re looking for other top-rated stocks in the Financial Services (Enterprise) industry, with an Overall POWR Rating of A or B, you can access them here.
As lending conditions continue to improve, NAVI is expected to thrive this year and beyond. It is also expected to gain by leveraging its diverse portfolio of products and services. In fact, its EPS is expected to grow at a rate of 7.4% per annum over the next five years. Given this favorable outlook, NAVI is trading at a considerable discount to its peers. So, we think value investors shouldn’t miss betting on it now.
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NAVI shares were trading at $14.37 per share on Thursday morning, up $0.06 (+0.42%). Year-to-date, NAVI has gained 48.20%, versus a 7.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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