TD Cowen analyst Moshe Orenbuch reiterated a Sell rating on Navient yesterday and set a price target of $11.00.
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Moshe Orenbuch has given his Sell rating due to a combination of factors impacting Navient’s financial performance. One of the primary reasons is the significant miss in Navient’s third-quarter earnings, which reported a core EPS of -$0.80, far below the expected $0.17. This shortfall was largely attributed to increased provisions driven by changes in prepayment and default rate assumptions, alongside deteriorating macroeconomic conditions.
Additionally, Navient’s legacy in-school loan portfolio is experiencing credit underperformance, with elevated delinquencies and higher charge-off expectations. The company has been slow to recognize losses, with reserve builds in half of the last 12 quarters. Despite trading at a discount to book value, Navient would need to earn over $2 per share to achieve a 10% return on equity, which is not anticipated in the forecast period. Furthermore, the lack of a developed loan sale program suggests that accelerating loan growth will incur substantial upfront costs, further impacting returns.