Nelnet Inc. (NNI) reported fourth-quarter 2009 earnings on March 3, significantly exceeding the Zacks Consensus Estimate. The company reported fourth quarter earnings of $1.64 per share, well ahead of the Zacks Consensus Estimate of $1.21.
Investors were clearly encouraged by this beat and shares moved up considerably following the earnings release. Wall Street has had sufficient time to absorb the news, and analysts have responded positively.
Let’s now cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both the short-term and the long-term outlook for the stock.
Earnings Report Review
Beating the estimates by a considerable amount is a definite positive for the stock price. The outperformance reflects the benefits of diversification of the company’s revenue through fee-based businesses, reduced operating expenses, improved core student loan spread and reduced debt burden.
Revenue from fee-based business increased 13% year-over-year while net interest income more than doubled from the prior-year period. Excluding restructuring and impairment charges, operating expenses were down 12% from the prior-year period.
(Read our full coverage on this earnings report: Nelnet Beats Zacks View)
Earnings Estimate Revisions – Overview
Following the earnings release, estimates have radically moved up. The estimate revision trends and the magnitude of such revisions justify the strength in the stock. We now go through the earnings estimate revision details to substantiate why an investor would want to buy this stock.
Agreement of Estimate Revisions
Looking at the estimates revision trends, it becomes clear that the analysts have agreed about the outlook for Nelnet earnings. The future is good for Nelnet. Below, we see that 5 analysts have raised estimates for FY2010 and none lowered them. Even for FY2011, 1 analyst has raised the estimate. These are strong sentiments, reflecting the potential for significant upward pressure on the shares over the near term.
Agreement – Estimate Revisions
Magnitude of Estimate Revisions
Estimates for FY2010 moved up significantly from $3.17 to $3.59 since the earnings announcement. The estimates for FY2011 also moved up from $1.90 to $2.71. The robust upward estimate revisions coupled with the absence of any downward revisions indicate why Nelnet is worth adding to the investment kitty.
Magnitude – Consensus Estimate Trend
Nelnet an Outperformer
Nelnet continues to benefit from its diversified business model. Increasing revenues from fee-based business and servicing of loans for the Education department coupled with cost containment initiatives augur well for the company. However, the company could face uncertainty over the enactment of the legislation concerning the elimination of private lenders from the student loan market.
The estimate revision trends, magnitude of revising the estimates and the lack of any downward revision of estimates clearly depict the potential for significant upward pressure on the stock over the near term. As such, Nelnet shares are maintaining a Zacks #1 Rank, which translates to a short-term ‘Strong Buy’ recommendation.
Considering the company’s business model, its market share, opportunities ahead and strategic restructuring efforts, we have a long-term “Outperform” recommendation on the stock.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “NNI”
Zacks Investment Research