Will Higher Fee Income Support Navient's (NAVI) Q3 Earnings?

Navient Corporation NAVI is scheduled to report third-quarter 2020 results on Oct 20, after market close. While its earnings are expected to have improved year over year, revenues might have declined.

This Wilmington, DE-based lender’s second-quarter 2020 earnings surpassed the Zacks Consensus Estimate on a fall in net interest income (NII). Also, lower expenses and provisions were tailwinds. However, year-over-year decline in fee income was an undermining factor.

Notably, the company has an impressive surprise history. Navient outpaced earnings estimates in three of the trailing four quarters and lagged in one, with the average surprise being 22.69%.

Navient Corporation Price and EPS Surprise

Navient Corporation price-eps-surprise | Navient Corporation Quote

The Zacks Consensus Estimate for earnings of 78 cents has been revised upward over the past seven days. Also, it indicates a rise of 25.8% from the year-ago reported figure.

However, the consensus estimate for sales of $282 million indicates a 9.6% year-over-year decline.

Factors at Play

Decline in NII: Per the Fed’s latest data, the consumer lending scenario remained muted during the quarter. Thus, Navient’s overall loan balances are less likely to have received support.

Also, the company’s NII is expected to have declined in the quarter because of lower interest rates. Notably, the Federal Reserve continued to keep interest rates at near-zero to protect the economy from the impacts of the coronavirus outbreak.

The Zacks Consensus Estimate of $280 million for NII indicates a decline of 6.7% from the previous quarter.

Higher Non-Interest Income: During the third quarter, business activities resumed, which is likely to have supported Navient’s fee income in the to-be-reported quarter. The Zacks Consensus Estimate of $55 million for servicing revenues indicates a rise of 5.8% from the prior quarter. The consensus estimate for asset recovery revenues suggests a sequential fall of 5.9%.

Overall, the consensus estimate for fee income of $173 million indicates a rise of 30% from the previous quarter.

Elevated Expenses: Navient’s initiatives to become a technologically advanced company and its aim to expand services outside the educational industry are likely to have resulted in elevated expenses.

What Our Model Unveils

Our quantitative model doesn’t predict an earnings beat for Navient this time around. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better increases the odds of an earnings beat, which is not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Navient is -1.92%.

Zacks Rank: The company currently carries a Zacks Rank of 1 (Strong Buy).

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

CullenFrost Bankers, Inc. CFR is scheduled to release quarterly earnings on Oct 29. The company, which carries a Zacks Rank #3 currently, has an Earnings ESP of +2.61%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Comerica Incorporated CMA is set to release quarterly results on Oct 20. The company currently has an Earnings ESP of +0.48% and a Zacks Rank of 3.

The Earnings ESP for Regions Financial RF is +3.31% and the company presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Oct 20.

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