Don't Expect Much Color On Government Lawsuits When Navient Reports Q1 Results

Student loan servicer Navient Corp NAVI has been embroiled in controversy for years, but Barclays analysts don’t think proliferating allegations of abuse bear much relevance to the company’s quarterly earnings.

“We await the conclusion around the [Consumer Financial Protection Bureau] lawsuit, which we believe will ultimately only have a limited impact on NAVI’s earnings though we don’t expect to get much color on efforts to resolve the lawsuit during the earnings call,” analyst Mark DeVries and Equity Research Vice President Terry Ma wrote in a Wednesday note.

Navient is engaged in individual legal battles with the CFPB and the states of Illinois and Washington for allegedly guiding borrowers into default and deceiving them into paying more than what was required. The company has garnered criticism for its response to the lawsuits, in which it claims no obligation to provide borrowers the best possible financial advice.

Untouched Earnings

Despite the public relations mess, Navient is expected to deliver in-line Q1 results to keep the company on track to meets its annual guidance. Barclays remains “constructive” on Navient but doesn’t see Q1 reports catalyzing the stock.

“NAVI shares have meaningfully underperformed SLM] (-10.7 percent vs. 9 percent, respectively), likely driven by concerns around the impact of 1M-3M LIBOR on margin as well as negative headlines from the CFPB settlement ultimatum around their servicing practices, both of which have created an overhand on NAVI’s shares,” DeVries and Ma wrote.

The firm predicts Q1 EPS of $0.42, private loan margins of 3.25 percent against last quarter’s 3.08 percent, and FFELP margins of 0.8 percent against a past 0.89 percent. Additionally, it predicts private loan net charge-offs of 2.37 percent versus a fourth-quarter rate of 2.3 percent.

Barclays maintains an Overweight rating on Navient with a $20 price target. Shares were trading around $14.89 at the time of publication.

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