Loan servicing company Navient (NASDAQ: NAVI)
shares have been underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
during the market recovery. This weakness is driven by many of the same factors causing bank and financial stocks to sell-off. However, NAVI has a fintech appeal
to its platform which should enable stronger snapback recovery during an economic restart phase, not mention the low price-earnings (PE) ratio hovering around 5. The wider time frame technicals are projecting a deeper pullbacks. This could set up opportunistic pullback levels for risk tolerant investors looking to gain from accelerating economic restarts.
Q2 FY 2020 Earnings Release
On July 21, 2020, Navient released its second-quarter fiscal 2020 results for the quarter ending June 2020. TheCompany reported an earnings-per-share (EPS) profit of $0.92 excluding non-recurring items versus consensus analyst estimates for a profit of $0.42, beating estimates by $0.50. Revenues rose 2.4% year-over-year (YoY) to $300 million beating the $271.67 million consensus analyst estimates. Navient saw a surge in revenues from contracting with four states for unemployment benefits servicing and contact tracing. The Company raised full-year 2020 guidance $2.95 to $3.00 versus consensus estimates of $2.09. However, the Company actually had original estimates of $3.00 to $3.10 before pulling guidance during the April pandemic peak.
Conference Call Takeaways
The government relief subsidies and policy exceptions in reaction to the coronavirus pandemic helped to soften the potential blow to credit performance and interest rate volatility. This helped bolster net interest income by $33 million YoY for the quarter. Credit performance was strong as 90-day delinquency rates fell from 38% to 1% at the end of June. The Company is seeing borrowers exit from disaster forbearances as “$1.7 billion has successfully exited forbearance where the borrower has not requested additional payment relief options.”, according to Navient President and CEO, Jack Remondi. Once a borrower exits forbearance, they have 30-days to resume loan payments. The Company has seen over 80% of borrowers successfully resuming payments.
Expecting Refi Recovery in 2H
The Company had cut marketing efforts dramatically due to lack of visibility from COVID-19 impacts. This caused originations to drop from $1.9 billion in Q1 to $238 million in Q2. Remondi emphasized the decline was intentional, not a surprise. As the pandemic peaks and restart initiatives are underway, Navient has bolstered marketing efforts and expects high quality, high value refi loans to recover back to $2 billion in H2 2020.
BPS Nimble and Agile
The Business Processing (BPS) segment saw the most significant drop in revenues due to drop in cars on the road generating less vehicle tolls, parking and hospital patient visits. National and state stay-in-shelter mandates precipitated the drops. However, the Company offset the losses due to new COVID-19 contact tracing and unemployment processing contracts resulting in $20 million in new revenues for the quarter. With isolation mandates lifted and phased in recoveries being implemented state-by-state, the Company anticipates the BPS segment to also see gradual improvement as traffic levels improve. With raised guidance, implementation of dividend and restarts accelerating, risk tolerant investors can look for opportunistic pullback entries during the sell-off in the financial sector.
NAVI Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NAVI stock. The monthly rifle chart stochastic is in a make or break pattern testing its 5-period moving average (MA) support at $7.88. Since the stochastic has crossed up, it looks towards the weekly rifle chart for a heads up. However, the weekly stochastic has peaked out slipped under the 80-band overbought level after peaking off the $9.47 Fibonacci (fib) level. This sets up a potential weekly stochastic oscillation down to provide opportunistic pullback levels at the $7.45 fib, $7.05 fib, $7.07 fib $6.43 fib and the $5.98 overlapping support fib. The extend of the weekly stochastic oscillation down is uncertain and investors should let thing unravel but be at the ready at the pullback levels which cover shallow to deep areas. Once the oscillation turns back up, the monthly has a market structure low (MSL) buy above $9.06 which can propel shares towards a retest of the double-top at $9.47. If the that area can breakout then the upside trajectories sit at the $10.25 fib, $10.70 monthly upper Bollinger Bands (BBs) and $11.71 overlapping fib in the best-case scenario. It’s important to keep stop losses if the last opportunistic pullback level fails.
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