Financial Services Stocks

Navient Corp Valuation – March 2018 $NAVI

Company Profile (obtained from Marketwatch): Navient Corp. engages in the provision of loan management, servicing, and asset recovery services. It operates the business through the following segments: FFELP Loans, Private Education Loans, Business Services, and Others. The FFELP Loans segment consists of its FFELP Loan portfolio; and the underlying debt and capital funding the loans. The Private Education Loans segment acquires finances and services private education loans. The Business Services segment provides servicing and asset recovery services for loans on behalf of Guarantors of FFELP Loans and other institutions. The Other segment covers activities related to repurchases of debt; its corporate liquidity portfolio; and unallocated overhead and regulatory-related costs. The company was founded on November 7, 2013 and is headquartered in Wilmington, DE.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NAVI – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,532,253,362 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 16766566.67% Pass
5. Moderate PEmg Ratio PEmg < 20 7.28 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.05 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.85
MG Growth Estimate -1.81%
MG Value $9.02
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $26.77
MG Value based on 0% Growth $15.69
Market Implied Growth Rate -0.61%
Current Price $13.43
% of Intrinsic Value 148.83%

Navient Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.1 in 2014 to an estimated $1.85 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 0.61% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Navient Corp revealed the company was trading below its Graham Number of $23.51. The company pays a dividend of $0.64 per share, for a yield of 4.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.28, which was below the industry average of 21.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Navient Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $23.51
PEmg 7.28
PB Ratio 1.05
Dividend Yield 4.77%
TTM Dividend $0.64
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $105,012,000,000
Total Assets $114,991,000,000
Intangible Assets $810,000,000
Total Liabilities $111,537,000,000
Shares Outstanding (Diluted Average) 269,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.87
Dec2017 $1.04
Dec2016 $2.12
Dec2015 $2.58
Dec2014 $2.66
Dec2013 $3.12
Dec2012 $1.90

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.85
Dec2017 $1.99
Dec2016 $2.47
Dec2015 $2.45
Dec2014 $2.10
Dec2013 $1.55
Dec2012 $0.63

Recommended Reading:

Other ModernGraham posts about the company

10 Best Dividend Paying Stocks for the Enterprising Investor – September 2016
7 Best Undervalued Stocks of the Week – 9/3/16
10 Low PE Stock Picks for the Enterprising Investor – September 2016
Navient Corp Valuation – August 2016 $NAVI
Navient Corporation Analysis – Initial Coverage $NAVI

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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