On Thursday, TD Cowen maintained a Sell rating on Navient (NASDAQ:NAVI) Corporation (NASDAQ:NAVI) with a steady price target of $13.00. The firm highlighted Navient's recent settlement with the Consumer Financial Protection Bureau (CFPB) over a lawsuit filed in 2017.
Navient faced allegations of misleading borrowers and inaccurately handling payments and credit reporting. The company has agreed to a $120 million fine, with $100 million allocated for affected borrowers and $20 million to the CFPB's civil penalty fund.
Navient, which had previously reserved $105 million for this litigation, will see a limited financial impact from the settlement. The additional $15 million accrual in the current quarter will result in a $0.10 negative impact on earnings per share (EPS) for Q3-2024. However, this amount is not considered material to the company's book value.
The analyst noted that Navient's ban from federal student loan servicing will not affect its business model, as it had already transferred its government servicing contract to a third party in 2021.
Moreover, Navient has reached an agreement to outsource its Federal Family Education Loan Program (FFELP) servicing portfolio to MOHELA, effective from July 1, 2024. This arrangement is expected to be net neutral to earnings.
TD Cowen views the $120 million fine and the federal student loan servicing ban as modestly positive developments for Navient. The company has already accounted for most of the fine and has transitioned its federal and FFELP loan servicing to third parties.
The firm anticipates that the future financial performance of Navient will largely depend on the outcome of the sale of its government servicing business and the use of the proceeds from the business process services (BPS) sales.
In other recent news, Navient has experienced significant developments. The U.S. Consumer Financial Protection Bureau (CFPB) has imposed a ban on Navient's federal student loan servicing and a penalty of $120 million due to identified failures in student lending practices.
Navient has also reached a settlement with the CFPB, marking a substantial shift in the company's operations. Navient's strategic restructuring efforts, including the sale of its Healthcare Services (NASDAQ:HCSG) business, Xtend, to CorroHealth for $365 million, are notable.
In the wake of these changes, Morgan Stanley maintained an Equalweight rating on Navient's shares, noting the positive financial impact of Xtend's sale. Navient has updated its full-year 2024 earnings per share (EPS) guidance to $1.35 to $1.55, reflecting strategic initiatives such as a servicing outsourcing agreement with MOHELA and ongoing discussions for the divestment of its Business Processing Solutions division.
Further, Navient has declared a third-quarter dividend of $0.16 per share, underscoring its commitment to shareholder value. These are some of the recent developments that investors should consider.
InvestingPro Insights
As Navient Corporation (NASDAQ:NAVI) navigates through its recent settlement and operational transitions, InvestingPro data provides a snapshot of the company's financial health and market performance. With a market capitalization of $1.7 billion and a trailing twelve-month P/E ratio of 9.28, Navient appears to be valued conservatively relative to earnings. The company's revenue for the last twelve months as of Q2 2024 stands at $1.032 billion, although it has seen a decline of over 21% year-over-year. Despite this, Navient has demonstrated financial resilience, maintaining a dividend yield of 4.37% as of the last dividend's ex-date on September 6, 2024.
Reflecting on InvestingPro Tips, it's noted that management's aggressive share buyback strategy could signal confidence in the company's value proposition. Additionally, Navient's ability to keep up with dividend payments for 14 consecutive years underscores its commitment to shareholder returns, even as analysts anticipate a sales decline and a drop in net income for the current year. Moreover, the company's liquid assets exceed its short-term obligations, which may provide some financial flexibility moving forward. For readers seeking more detailed analysis, InvestingPro offers further tips and insights on Navient Corporation at https://www.investing.com/pro/NAVI.
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