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Nelnet, Inc. (NNI)

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Nelnet's (NNI) second quarter earnings came in well ahead of the Zacks Consensus Estimate, reflecting a fall in interest expenses and the benefits of revenue diversification.

Though the student loan reform law has barred the company from originating federal student loans since July, in recent years, Nelnet has expanded in areas that are independent of the federal program. Increasing revenues from its fee-based business and servicing of loans for the Education department coupled with restructuring initiatives should support its earnings. Also with an expectation for a low interest rate environment, its floor income is projected to benefit.

While the challenging economic environment and anticipation of increase in compliance costs due to the recent financial reform act are the downsides, Nelnet's solid capital levels and debt reduction efforts are encouraging. Hence we have an Outperform recommendation on NNI shares.

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