The prospect of a prolonged government shutdown and global trade uncertainty threatens what has been "steady, reliable domestic growth," JPMorgan analyst Richard Shane tells investors in a research note on the Specialty Finance sector. Further, the analyst believes the outlook for Fed action has become more clouded. However, Shane thinks sentiment across his sector seems to reflect uncertainty, which gives him an "increasingly positive bias" to the group. He sees the most upside potential among consumer finance names, with late cycle uncertainty "potentially dampening" upside among commercial mortgage real estate investment trusts. Shane this morning upgraded a host of names: Navient (NAVI), OneMain Holdings (OMF) and KKR Real Estate Finance Trust (KREF) to Neutral from Underweight and TCG BDC (CGBD), Annaly Capital (NLY) and Apollo Commercial (ARI) to Overweight from Neutral. Today's downgrades are Santander Consumer (SC), BlackRock Capital Investment (BKCC), WhiteHorse Finance (WHF) to Underweight from Neutral along with PennantPark (PNNT) and Granite Point Mortgage (GPMT) to Neutral from Overweight.

Bearish flow noted in Annaly Capital with 5,188 puts trading, or 3x expected. Most active are Jun-24 18 puts and May-24 18.5 puts, with total volume in those strikes near 3,800 contracts. The Put/Call Ratio is 2.27, while ATM IV is up nearly 2 points on the day. Earnings are expected on July 24th.

Consumer Finance Analyst Shane holds a conference call with Head of Investor Relations Earyes to discuss earnings on April 25 at 1 pm. Webcast Link

Barclays analyst Terry Ma lowered the firm's price target on Navient to $11 from $13 and keeps an Underweight rating on the shares. The company's Q1 results missed estimates and the earning guidance was lowered as net interest margin continues to face additional headwinds, the analyst tells investors in a research note. The firm thinks Navient's issues and the execution risk around the cost reduction plans will continue to weigh on the shares going forward.

Keefe Bruyette analyst Sanjay Sakhrani lowered the firm's price target on Navient to $17 from $19 and keeps a Market Perform rating on the shares. Following the company's Q1 report, the firm is lowering its 2024 and 2025 EPS estimates, largely to reflect the impact of elevated prepayment rates on FFELP net interest margin.

"We have made substantial progress on the three strategic actions launched earlier this year to outsource student loan servicing, explore strategic options for our business processing division, and streamline our shared service infrastructure and corporate footprint," said David Yowan, president and CEO, Navient. "We are nearing completion of a final outsourcing agreement - which will pave the way for the transition of nearly 900 employees to support seamless service for our customers. Further, we expect to be in a position to decide on the options to divest our business processing division. We are beginning to execute our plans for a leaner company. When completed, we believe these actions will simplify our business, reduce our expense base, and increase our financial and operating flexibility."