Nelnet, Inc. (NNI) is a diversified company that offers educational services, technology solutions, telecommunications and asset management. The Company’s segments include Loan Servicing and Systems (LSS); Education Technology, Services and Payment Processing (ETS&PP); Communications; Asset Generation and Management (AGA); and Nelnet Bank.
Inflation jumped, with the consumer price index rising 8.6% in May. The Federal Reserve has tried to control high inflation for 40 years through aggressive interest rate hikes. Benchmark interest rates have already been raised three times this year, and more such hikes are in sight.
Usually, rising interest rates do not bode well for most businesses as debt financing becomes more expensive. However, the financial sector, which includes banks, insurance companies and other lenders, benefits from rising interest rates as it helps them increase their interest income. Therefore, most financial companies should benefit from the current interest rate environment.
Additionally, investors are typically on the lookout for under-the-radar stocks that have gone unnoticed despite their strong financial performance. NNI is one such financial stock that could benefit from rising interest rates and its fundamental strength.
NNI launched Nelnet Bank on November 2, 2020 to provide student loan refinance, private student loans and other consumer loans. Nelnet Bank reported a net profit of $0.70 million for the quarter ended March 31, 2022, compared to a net loss a year earlier. NNI’s Nelnet Bank may benefit from rising interest rates as it could help boost the company’s revenue and profits.
NNI stock has gained 3% in price over the past nine months and 8.6% over the past year to close the last trading session at $82.40.
Here is what could influence NNI’s performance in the coming months:
Strong finances
NNI’s net interest income increased 1.2% sequentially to $77.11 million for the first quarter ended March 31, 2022. The company’s net income increased 51% year on year on the other to reach $186.64 million. Additionally, its EPS came in at $4.91, representing a 53.4% year-over-year increase. Additionally, its cash, cash equivalents and investments grew 62.2% year-over-year to $1.81 billion.
Unfavorable analyst estimates
NNI’s revenue for fiscal 2022 and 2023 is expected to decline 3.9% and 13% to $1.37 billion and $1.20 billion, respectively. Its EPS for fiscal 2022 and 2023 is expected to decline 15.9% and 12.6% year-over-year to $7.04 and $6.15, respectively.
High profitability
In terms of rolling 12 months Gross margin, NNI’s 92.09% is 42.8% higher than the industry average of 64.46%. Similarly, its Capex/S of 3.84% over the last 12 months is 137.9% higher than the sector average of 1.61%. Additionally, its 30.80% 12-month net profit margin is 5.9% higher than the industry average of 29.08%.
POWR ratings are promising
NNI has an overall rating of B, which equates to a buy in our POWR rating system. The POWR Rankings are calculated taking into account 118 different factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. NNI has a B rating for quality, in line with its common equity yield of 15.63% over 12 months, which is 25.1% above the industry average of 12.49%.
NNI is ranked #9 out of 106 stocks in the Financial Services (Corporate) industry. Click here to access NNI’s growth, value, momentum, stability and sentiment ratings.
Conclusion
NNI is a quiet financial company whose interest income is expected to increase due to rising interest rates. Its strong financials and industry-beating profitability should help the stock perform well in the coming months. So we think it might be a good idea to add this stock to your portfolio.
How Nelnet, Inc. (NNI) Works Up to his peers?
NNI has an overall POWR rating of B, which equates to a buy rating. You may want to consider investing in the following financial services (companies) stocks with an A (Strong Buy) or B (Buy) rating: Forrester Research, Inc. (FORR), Essent Group Ltd. (ESNT) and Consumer Portfolio Services, Inc. (SCSP).
NNI shares were flat in premarket trading on Friday. Year-to-date, the NNI is down -15.15%, compared to a -19.21% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This allowed him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets. After…
