'Opportunities Abound' For Navient; D.A. Davidson Initiates With Buy Rating

D.A. Davidson’s Arren Cyganovich believes that despite the recent rally in the share price, Navient Corp NAVI shares continue to trade “below the intrinsic value of expected cash flows from its legacy loan businesses and from new avenues for growth ahead.”

Cyganovich initiated coverage of the company with a Buy rating and a price target of $21.

Growth Opportunities

“As the largest holder of education loans in the U.S., we believe it can use its scale and servicing expertise to win new portfolio acquisitions and expand into new areas, such as deepening its penetration into healthcare receivables management,” the analyst mentioned.

Cyganovich expects portfolio purchases by Navient to drive EPS upside, given that management indicated that there were chances of acquiring FFELP loans worth $7 billion–$10 billion in 2017, which would prove 7 percent accretive to the EPS.

In addition, there are new avenues for growth for the company, beyond portfolio acquisition, including opportunities in “potential new tax/municipal asset recovery wins, the ED servicing platform contract, potential PEL originations beginning in 2019, and greenfield opportunities that may arise under the new presidential Administration.”

Further Potential

The analyst also sees potential opportunity for Navient’s asset recovery business to sustain the growth of its healthcare services, with the rising complexity of health insurance.

“Following a year that distracted management’s focus to technical issues surrounding its ABS, we believe renewed attention to growth opportunities creates catalysts for shares,” Cyganovich went on to say.