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Why Nelnet, Inc. Shares Popped

By Sean Williams – Feb 28, 2014 at 4:43PM

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Nelnet shares soar after the company reports better-than-expected fourth-quarter results. Is this quarter an anomaly, or can Nelnet's stellar results continue?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nelnet (NNI -0.09%), a financial services company that provides education services such as student loan and guaranty servicing, as well as tuition payment processing, jumped as much as 15% after reporting better-than-expected fourth-quarter earnings results after the closing bell last night.

So what: For the quarter, Nelnet reported adjusted EPS of $1.51 per share, excluding derivative market value and foreign currency adjustments, which was $0.12 better than the Street was expecting. Nelnet added $1.9 billion in student loan purchases during the quarter, and now possesses $25.9 billion in net student loan assets, which it believes could generate undiscounted future cash flow of roughly $2.17 billion. Fee-based revenue for the quarter rose a more modest 5%, but was propped up by a 16% increase in its student loan and guaranty servicing operations.

Now what: Nelnet may be held back in the near term by the perception that student enrollment in colleges, especially online colleges, isn't growing nearly at the pace it was a decade ago. However, it should continue to benefit from historically low lending rates, which are encouraging on-the-fence citizens to make the jump to college and finance their educations through a loan. Nelnet has years upon years of cash flow coming its way and, as long as it remains prudent about its capital deployment this year, I see no reason why its shares couldn't head higher.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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$98.85 (-0.09%) $0.09

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