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Why Shares of Navient Corp. Fell More Than 10% Today

By Jordan Wathen – Jul 14, 2015 at 11:16AM

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The largest student loan servicer has some bad news for its investors.

What: Shares of Navient Corp. (NAVI -0.63%) are trading lower by about 10% after the company reduced its earnings guidance for the full year.

So what: In an 8-K filed with the SEC, Navient announced that it now expects core earnings for the second quarter of $0.40 per diluted share, and GAAP earnings of $0.47 per share. It also reduced its guidance for full year core earnings to $1.85 per diluted share. 

It attributed its lower guidance to falling net interest margins from rising cost of funds and some expected credit losses.

The company noted that a segment of its higher-risk private education loan borrowers who previously deferred their loans are now coming out of deferment. These specific pools have experienced worse credit trends than expected, and the company will increase its provisions for losses by $191 million in the current quarter and $575 to $600 million for the full year.

Now what: It appears the company will be slowly backing out of the private loan market. In the 8-K, the company's CEO, Jack Remondi, said, "While we have removed private education loan acquisitions from our guidance, we continue to believe that there will be opportunities for Navient to acquire loans in 2015 and beyond." The company also announced a restructuring initiative which would result in a $29 million charge to GAAP earnings during the second quarter.

Navient is expected to report earnings after the bell on July 21. Given the reduced guidance, investors should pay close attention to what management has to say about future loan acquisitions on its conference call slated for July 22.  

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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