Nelnet Beats Zacks View

Nelnet Inc.’s (NNI - Analyst Report) fourth quarter earnings of $1.64 per share were well ahead of the Zacks Consensus Estimate of $1.21. The company had earned 32 cents per share in the year-ago quarter. Quarterly results reflect the benefits of diversification of revenue through fee-based businesses, reduced operating expenses, improved core student loan spread and reduced debt burden.

Including discontinued operations, restructuring charges, impairment expenses, and certain liquidity-related charges, the company reported GAAP net income of $59.1 million or $1.18 per share compared with $31.0 million or 63 cents in the year-ago period.

For full year 2009, the company reported a GAAP net income of $139.1 million or $2.78 per share, compared with $28.7 million or 58 cents per share a year ago.

Nelnet’s fee-based business generated revenue of $77.3 million, up 13% from the prior-year period. Fee-based revenue from tuition payment plans, campus commerce and certain enrollment services businesses increased 16% year-over-year to $36.0 million.

Nelnet commenced servicing federally owned student loans in September 2009 for the Department of Education (DOE). As of Dec 31, 2009, the company was servicing about $3.4 billion of loans for the DOE. Approximately $1.5 billion of such loans were previously catered to other companies but are now being serviced by Nelnet. As of Mar 1, 2010, servicing volume for the DOE further increased to $6.3 billion.

Nelnet was one of four private sector servicers who were awarded a servicing contract in June 2009 by the DOE to service all federally-owned student loans, including Federal Family Education Loan Program (FFELP) loans purchased by the DOE pursuant to Ensuring Continued Access to Student Loans Act (ECASLA).

Nelnet reported a net interest income of $80.5 million, up from $38.5 million reported in the year-ago period. Core student loan spread increased 17 basis points sequentially and 54 bps year-over-year to 1.44%, primarily driven by narrower spreads and a low interest rate environment. Provisions for loan losses were $6.0 million, down from $7.0 million in the prior-year period.

Nelnet reported a pre-tax gain of $26.9 million on the sale of $1.7 billion of federal student loans to the DOE and $22.7 million from the company’s repurchase of $302.1 million of asset-backed debt.

The company has reported a decrease in operating expenses in the quarter. Excluding restructuring and impairment charges, operating expenses were down 12% from the prior-year period. Total operating expenses, excluding the impairment charge, for the reported quarter was $90.3 million.

Nelnet continues to benefit from its diversified business model. Increasing revenues from fee-based business and servicing of loans for the DOE, coupled with the cost containment initiatives, augur well for the company. Also, the capital market appreciation and a low interest rate environment should help the company to post strong earnings going forward.

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