Analyst: Navient Stock Is Simply Too Cheap, Buy It

Can things get any worse for Navient Corp NAVI?

Not according to Credit Suisse’s Moshe Orenbuch. By his estimates, Navient’s nearing the bottom.

The education-services firm is down 20 percent year to date, and after a sharp, 4.7-percent sell-off Thursday, Orenbuch perceived a buying opportunity and upgraded the stock to Outperform.

What’s Going Right?

Despite government relations woes, including accusations of client exploitation by the Consumer Financial Protection Bureau and members of Congress, Navient is expected to profit from favorable regulatory changes.

Last week, the Department of Education terminated its information-sharing agreement with the CFPB, which the Street considered an indisputable positive.

"Although this is a procedural shift, we view the announcement as an unambiguous signal from the Trump administration that the education services industry will face a far less onerous federal regulatory environment in the years ahead," Compass Point analyst Michael Tarkan wrote in a Tuesday note.

More regulatory boosts could follow.

“We could see Republicans scale back government involvement in education finance, which would expand the private student loan market,” Orenbuch wrote Friday.

At the same time, he sees catalysts in lower interest rates, portfolio purchases within the Federal Family Education Loan Program, private student loan originations, acquisitions in fee businesses and, perhaps most notably, tax reform.

“Like other U.S. based financials, Navient would benefit disproportionately from tax reform, relative to sectors with international exposure, given that it generates 100 percent of income from the U.S. and pays a 37 percent to 38 percent tax rate,” Orenbuch wrote. “Each 100 basis point reduction in the U.S. federal tax rate would increase EPS by about $0.15 share compared to our 2018 EPS estimate of $1.84.”

Performance Expectations

Credit Suisse anticipates strong capital return in 2018 and post-tax cash flow between $2.1 billion and $2.3 billion, incentivizing buybacks.

The firm issued a $16.50 price target on the stock, which was trading up 3.58 percent at $13.61 at the time of publication.

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