1st Source (SRCE) Upgraded to Strong Buy: Here's What You Should Know

Navient Corporation NAVI is scheduled to report third-quarter 2024 results on Oct. 30, before market open. NAVI’s quarterly revenues and earnings are anticipated to have declined from the year-ago quarter’s reported level.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

This Wilmington, DE-based lender’s second-quarter 2024 earnings of 53 cents surpassed the Zacks Consensus Estimate of 42 cents. Results were driven by a decline in total expenses. A solid liquidity position was another positive. A decrease in net interest income (NII) and other income were headwinds.

NAVI has a decent earnings surprise history. Navient’s earnings outpaced estimates in three of the trailing four quarters and missed once, with an average earnings surprise of 4.38%.

Navient Corporation Price and EPS Surprise

Navient Corporation price-eps-surprise | Navient Corporation Quote

Key Factors to Influence Navient’s Result in Q3

Per the Fed’s latest data, consumer loan demand remained steady in the third quarter. The lending environment witnessed a slight improvement after the central bank cut interest rates by 50 basis points to a range of 4.75-5% on Sept. 18, marking the first reduction since March 2020.

While this development might prove to be helpful in the long term, it is not expected to have a positive impact on NAVI’s NII during the third quarter. Also, relatively higher rates might have hurt NII growth prospects due to the elevated funding costs. As a result, revenues in the Federal Education Loans and Consumer Lending segments are likely to have declined.

The consensus estimate for NII (Federal Education loan) is pegged at $49.3 million, suggesting a sequential decline of 7%. The Zacks Consensus Estimate for NII (consumer lending) is pegged at $122 million, suggesting a sequential decline of 3.2%.

The Zacks Consensus Estimate for NII (Core) is pegged at $142.3 million, indicating a sequential rise of 4.6%. The Zacks Consensus Estimate for other income of $5.1 million indicates a 27.5% increase from the prior quarter’s reported figure.

The consensus estimate for servicing revenues is pegged at $16.23 million, indicating a 9.8% fall from the prior quarter’s reported figure. The Zacks Consensus Estimate for asset recovery and business processing revenues of $80.2 million indicates a 1% fall from the prior quarter’s reported figure.

The Zacks Consensus Estimate for total non-interest income of $102.6 million declined marginally from the prior quarter’s reported figure.

Navient's cost-control measures are expected to have improved operating efficiency and reduced expenses, which might have offered some support to the bottom-line growth in the third quarter.

What the Zacks Model Reveals for Navient

Navient does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Navient is -6.85%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

NAVI’s activities in the to-be-reported quarter were inadequate to gain analysts’ confidence. As a result, the Zacks Consensus Estimate for third-quarter earnings of 23 cents per share has been revised downward by 14.8% in the past month. Also, the figure indicates a 72.62% decline from the year-ago reported figure.

The Zacks Consensus Estimate for revenues of $150 million indicates a decline of 46.42% from the year-ago reported number.

Bank Stocks Worth a Look

Some better-ranked stocks from the broader banking space are 1st Source Corporation SRCE and UMB Financial Corporation UMBF, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SRCE’s 2024 earnings has moved marginally upward over the past 30 days. In the past six months, shares of SRCE have risen 20.6%.

The Zacks Consensus Estimate for UMBF’s 2024 earnings has remained unchanged over the past 30 days. Its shares have risen 27.3% in the past six months.

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1st Source (SRCE) came out with quarterly earnings of $1.41 per share, beating the Zacks Consensus Estimate of $1.36 per share. This compares to earnings of $1.32 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 3.68%. A quarter ago, it was expected that this holding company for 1st Source Bank would post earnings of $1.25 per share when it actually produced earnings of $1.49, delivering a surprise of 19.20%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

1st Source, which belongs to the Zacks Banks - Midwest industry, posted revenues of $97.93 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 0.65%. This compares to year-ago revenues of $93.69 million. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

1st Source shares have added about 8.6% since the beginning of the year versus the S&P 500's gain of 21.5%.

What's Next for 1st Source?

While 1st Source has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for 1st Source: favorable. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #1 (Strong Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $1.28 on $98.3 million in revenues for the coming quarter and $5.37 on $386.9 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks - Midwest is currently in the top 22% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the broader Zacks Finance sector, Lument Finance (LFT), is yet to report results for the quarter ended September 2024.

This real estate investment trust is expected to post quarterly earnings of $0.10 per share in its upcoming report, which represents a year-over-year change of -9.1%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Lument Finance's revenues are expected to be $9.06 million, down 5.1% from the year-ago quarter.

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