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Why Navient Jumped 18% in April

What happened

Shares of student loan provider Navient (NASDAQ: NAVI) rose 17.6% in April, according to S&P Global Market Intelligence. Shares climbed steadily all month and accelerated after the company released earnings on April 27.

Image source: Getty Images.

So what

Navient delivered record earnings per share (EPS) and increased guidance for the full year by more than 30%. Management now expects $4.15 to $4.25 EPS, representing 23.5% growth over last year. That's on top of 28% compounded growth in the three previous years. It also surprised investors, upping this year's anticipated share repurchases by 50%.

The stellar results and buyback news drove shares higher weeks after a heated congressional hearing. During the event, Navient was chastised for questionable lending practices -- some that are alleged, and others for which Navient has paid fines. Another point of contention was the $22 million the company has been ordered to repay the government after overcharging for services.

What now

The company had set aside significant reserves last year over concerns about loan losses as economic uncertainty reigned. Management is maintaining the reserves, but the fear has largely passed. Delinquency rates are down 21% from last year. At the current pace, those reserves will be reversed at some point and provide a boost of additional profits.

Management also expects another concern to clear up. As courses moved online last year, the desire of graduating high school students to attend college fell. Enrollment was down 2.5% last fall, meaning colleges lost about 400,000 students. This directly reduces demand for Navient's product. In what was music to shareholders' ears, Navient confirmed 2021 guidance for loan origination and said vaccines should make both the experience and the demand this fall more typical.

That will be a key number for shareholders to watch. In spite of a return to normal, college enrollment has actually fallen every year since 2016. That means that even before the pandemic, fewer students were opting to borrow the tens or hundreds of thousands of dollars to obtain a degree. For a company that makes most of its money by providing loans for college, that could be a problem in the years ahead.

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Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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