Zacks_Analysts' Blog : Nelnet Reaffirmed at Neutral - Analyst Blog

We have recently reiterated our Neutral recommendation on the shares of Nelnet Inc. (NNI) following a detailed analysis of the company fundamentals in light of the current economic and legislative environment. The company reported third-quarter 2011 earnings of $1.22 per share, 11 cents ahead of the Zacks Consensus Estimate, but down from the prior-year quarter’s earnings by a penny.

Nelnet’s results reflected the benefits from the diversification of its revenue through fee-based businesses. Additionally, provisions for loan losses as well as expenses witnessed a fall during the quarter. However, a drop in investment interest income was the downside.

On a GAAP basis, Nelnet’s third-quarter net income stood at $47.5 million or 98 cents per share, significantly up from net loss of $0.4 million or 1 cent per share in the comparable quarter last year.

Although the student loan reform law has barred student lenders such as SLM Corp. (SLM) and Nelnet from originating federal student loans since July 2010, 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 should bolster its earnings. The company has significant growth opportunities as demand for education increases, the education process becomes more complex, and schools look to become more efficient.

However, we believe that recent legislative developments and a protracted economic recovery will continue to linger. Also, expenses are likely to increase with the rise in the volume of loan servicing. Nevertheless, capital deployment efforts are encouraging and inspire investors’ confidence in the stock.

Therefore, considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.