Our $18 target price is based on a P/E valuation approach. We apply a 7.8x multiple on our 2025 core EPS of $2.31 to arrive at our $18 target price. The multiple is a 25% premium to its 10-year historical average forward P/E of 6.2x with a low of 1.6x and high of 8.4x, due to the upside potential of strategic actions.

The key risks to the shares achieving our target price include the following:

Political Risk – Politicians have discussed student loan forgiveness that would essentially repay all of NAVI’s student loans and reduce expected cash flows from interest earned. We view this as a very low probability event.

Credit Risk – Unlike FFELP loans, which are largely guaranteed by the federal government, NAVI bears the full credit exposure for its private education loans. 

Interest Rate Risk – NAVI faces interest rate risk on its loan portfolio and capital markets funded liabilities.

Regulatory Scrutiny – NAVI is currently involved in a lawsuit from the CFPB. This will likely continue for several quarters, leading to added legal expenses, a distraction to management, and potential headline noise. 

Company-specific positive risks include: 1) better than expected loan growth; and 2) better credit performance.

If the impact of any of these factors proves to be greater than we anticipate, the stock will likely have trouble achieving our target price. Conversely, if the impact is less than we anticipate, the stock could outperform our target price.