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Navient Stock Fell Drastically in the Week Ending July 17

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Jul. 24 2015, Published 3:16 p.m. ET

Navient shares fell hard last week

Navient (NAVI) is the largest student loans service in the United States (SPY). It had a market capitalization of $65.5 billion as of July 17. In an 8K filed with the SEC (US Securities Exchange Commission) last week, the company reduced its earnings guidance for the year.

As a consequence, Navient shares fell by a significant 8.22% last week. Year-to-date, the stock has fallen by 21.98%. Here’s how some peers in the consumer finance sector have fared in comparison:

  • American Express (AXP) – -14.85%
  • Discover Financial (DFS) – -9.68%
  • Capital One Financial (COF) – +10.22%

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Muted earnings guidance for 2015

It now expects core EPS (earnings per share) of $0.40 for the second quarter and GAAP (generally accepted accounting principles) earnings per share of $0.47. It also revised its earnings per share forecast for the full year to $1.85, down from $2.20.

The company attributes its lower guidance to the expectation that its net interest margins will be lower due to the rising cost of funds. As a result, Navient expects some credit losses. It also expects higher provisions and a lower recovery rate. Navient forecasts that net interest margins for private education loans will be in the range of 3.83% to 3.85% in the second half of 2015.

Analysts on the street have revised their EPS estimates for Navient downward seven times in the past month. On Friday, Navient closed at $16.86, below its respective 100-day, 50-day, and 20-day moving averages of $20, $19, and $18.

It still trades at a discount of 19.7% to consensus price estimates of $20.63.

In a report published on July 15, Barclays upgraded its “equal-weight” rating on the stock to “overweight” and decreased its price target from $22 to $21. This corresponds to a 26.51% upside based on the last closing price. On the date the report was published, the stock closed at $16.56.

Credit Suisse reiterated its “outperform” position on July 14 and lowered its price target from $23 to $21. This corresponds to a 26.51% upside based on the last closing price.

The company announced disappointing second-quarter earnings on July 21, which we’ll analyze in the next part of this series.

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