Company ProfileÂ (obtained fromÂ 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.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-1.81%|
|MG Value based on 3% Growth||$26.77|
|MG Value based on 0% Growth||$15.69|
|Market Implied Growth Rate||-0.61%|
|% 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
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2017|
|Long-Term Debt & Capital Lease Obligation||$105,012,000,000|
|Shares Outstanding (Diluted Average)||269,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.87|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.85|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.