Nelnet

Company Description

Nelnet is a transaction processing and finance company. It provides education-related products and services including student loan servicing, claim processing, and post-default collections.

The federal government recently eliminated the role of private lenders in originating federal student loans. However, Nelnet is expected to play a major role as a participant in the Department of Education’s servicing contract, under which it will service and collect government guaranteed loans.

Due to a decline in its student loan origination business, analysts are forecasting Nelnet's earnings to decline over the next two years. Longer term, however, they are more bullish and expect NNI to have long-term EPS growth of 17%.

Fee-Based Revenue Growth

In the fourth quarter, the company had fee-based revenues of $77.3 million, up 13% year-over-year. Fee-based revenue now accounts for 60% of Nelnet's revenues.

Moreover, as of December 31, 2009, the company was servicing approximately $3.4 billion of loans on behalf of the Department of Education (DOE), of which approximately $1.5 billion was incremental volume previously serviced by other companies. As of March 1, 2010, servicing volume for the DOE grew to $6.3 billion.

EPS Estimates Are Climbing

In the fourth quarter, Nelnet beat the Zacks Consensus Estimate by 43 cents, or 35.5%. It was the fourth time in the last five quarters that the company beat consensus estimates.

As a result, analyst estimates have been moving up. In the last two months, the Zacks Consensus Estimate for 2010 have increased 39 cents, or 12.3%, while the 2011 Zacks Consensus Estimate is up 75 cents, or 39.5%.

Industry Leader

Nelnet has a trailing-twelve month net profit margin of 13.4%, compared to the industry average of 12.5%. The company's return on equity (ROE) is 25.8%, soaring past the industry's ROE of 5.3%.

In addition, Nelnet's expected long-term EPS growth of 17.0% and 1.5% dividend yield look impressive compared the industry's expected growth of 13.3% and 0% dividend yield.

Read the full analyst report on NNI