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Nelnet, Inc. (NNI)

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Nelnet's (NNI) first quarter earnings were well ahead of the Zacks Consensus Estimate, primarily reflecting a decrease in interest expenses and the benefits of a diversification of revenue through fee-based businesses.

In recent years, Nelnet has expanded products and services generated from businesses that are not dependent upon a new federal program which forbids private sector companies from making new federal student loans. We believe that increasing revenues from its fee-based business and servicing of loans for the Education department coupled with restructuring initiatives should support its earnings.

As such, we have an Outperform recommendation on the stock. Our six-month target price of $24.00 equates to 5.9X our earnings estimate for 2010. With a quarterly dividend of $0.07 per share, this price target implies an expected total return of 22.9% over that period.

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