Risk Of Regulatory Hammer-Drop Diminishes, Is Navient A Buy Again?

The U.S. Department of Education has had enough of “overreaching” watchdogs.

Officials announced Friday that they would terminate two agreements with the Consumer Financial Protection Bureau pertaining to information-sharing and oversight cooperation ━ welcome news for recent targets of CFPB scrutiny.

Navient Corp NAVI earned a 4.2-percent stock boost and a fresh Buy rating from Compass Point Research & Trading on the report.

“Although this is a procedural shift, we view the announcement as an unambiguous signal from the Trump administration that the education services industry will face a far less onerous federal regulatory environment in the years ahead,” analyst Michael Tarkan wrote in a Tuesday note.

Legal Uncertainties

The diminished regulatory risks are further compounded by an anticipated change in legal tenor.

In January, the CFPB sued Navient, the nation’s largest student loan servicer, for allegedly violating the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act and the Fair Debt Collections Practices Act. However, the DOE accused the Bureau Friday of overstepping its jurisdiction in its general dealings with contracted federal loan servicers, which may ultimately affect legal pursuits.

Considering the CFPB director’s upcoming term expiration and anticipated appointment of a more relaxed successor, Tarkan said Navient’s legal troubles could take another direction.

“From a practical perspective, a leadership shift at the CFPB will foster a less aggressive enforcement environment for the industry, narrow the rulemaking agenda, and possibly even lead to the resolution or termination of the NAVI lawsuit,” he wrote.

Other Catalysts

Between a 16-percent post-earnings pullback and the potential seizure of federal collections contracts, Tarkan considers now the time to buy into Navient.

The DOE is expected to award new contracts within the next few weeks, and Tarkan sees a 65-percent chance of Navient winning a revenue-boosting bid.

Compass maintained its $16.50 price target on the stock, which was trading at $13.83 at the time of publication.

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