What happened
Nelnet (NNI 0.06%) jumped 10.6% in November, according to S&P Global Market Intelligence, besting the overall market. In comparison, the Dow Jones Industrial Average was up 5.7% in November while the S&P 500 gained 5.4% last month.
The strong performance in November has helped to keep Nelnet as one of the better performing financial stocks this year, as it is only down about 1% year to date (YTD) as of Dec. 5.
So what
Nelnet is a company that is primarily known as a student loan servicer. It is one of just a few companies that works with the federal government to service its student loans.
But it also has three other business lines, including one that provides payment processing and other services for private schools and colleges. It also has Nelnet Bank, which offers private student loans and refinancing. Its fourth business is asset generation and management, which invests in real estate, venture capital, and other assets from its cash flow in its other businesses -- not unlike a Baby Berkshire.
Nelnet's stock price surged higher on Nov. 7 after the company released its third-quarter earnings. The company posted net income of $104.8 million, or $2.80 per share, up from $53.1 million, or $1.38 per share, for the same period a year ago. Excluding derivative market value adjustments, net income was $64.5 million, or $1.73 per share, up from $47.6 million, or $1.23 per share, a year ago.
The loan servicing business led the way with $134.2 million in revenue, up from $112.4 million a year ago. This was mainly due to an increase in the number of federal borrowers serviced. As of Sept. 30, Nelnet was servicing $590.4 billion in loans for 17.5 million borrowers, up from $513.5 billion for 15.8 million borrowers on Sept. 30, 2021. Income in the banking and payment processing businesses was also up year over year.
Now what
Nelnet investors will be watching what happens with President Joe Biden's proposal to provide student loan relief and forgiveness. The proposal was challenged, and a federal appeals court issued an injunction in November, temporarily preventing the debt forgiveness program from going through.
Last week, the U.S. Supreme Court upheld the lower court's injunction for now but said it would hear arguments in February or March of next year and fast-track a ruling, hopefully by next June.
Until then, Nelnet is a buy, as it is an excellent all-weather stock with a fairly low valuation. But if the debt forgiveness program does occur, it could have an impact on the loan servicing business.
