Nelnet, Inc. (NNI - Get Rating) 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 (AGM); and Nelnet Bank.

Inflation has been surging, with the consumer price index advancing 8.6% in May. The Federal Reserve has been trying to tame the 40-year high inflation through aggressive interest rate hikes. The benchmark interest rates have already been raised thrice this year, with more such hikes in the offing.

Usually, rising interest rates do not bode well for most companies, as financing through debt becomes costlier. 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 are expected to benefit from the current interest rate environment.

Moreover, investors are usually on the lookout for under-the-radar stocks which have gone unnoticed despite their solid financial performance. NNI is one such financial stock that could benefit from the interest rate hike and its fundamental strength.

NNI launched the Nelnet Bank on November 2, 2020, to provide student loan refinancing, private student loans, and other consumer loans. The Nelnet bank reported a net income of $0.70 million for the quarter ended March 31, 2022, compared to a net loss in the year-ago period. NNI’s Nelnet Bank can benefit from the rising interest rates as it could help drive the company’s revenue and earnings.

NNI’s 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’s what could influence NNI’s performance in the upcoming months:

Robust Financials

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-over-year to $186.64 million. Also, its EPS came in at $4.91, representing an increase of 53.4% year-over-year. In addition, its cash, cash equivalents, and investments increased 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 trailing-12-month gross profit margin, NNI’s 92.09% is 42.8% higher than the 64.46% industry average. Likewise, its 3.84% trailing-12-month Capex/S is 137.9% higher than the industry average of 1.61%. Also, its 30.80% trailing-12-month net income margin is 5.9% higher than the 29.08% industry average.

POWR Ratings Show Promise

NNI has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NNI has a B grade for Quality, in sync with its 15.63% trailing-12-month return on common equity, which is 25.1% higher than the 12.49% industry average.

NNI is ranked #9 out of 106 stocks in the Financial Services (Enterprise) industry. Click here to access NNI’s Growth, Value, Momentum, Stability, and Sentiment ratings.

Bottom Line

NNI is an under-the-radar financial company whose interest incomes are expected to grow on the back of rising interest rates. Its robust financials and higher-than-industry profitability should help the stock perform well in the upcoming months. So, we think adding this stock to your portfolio could be wise.

How Does Nelnet, Inc. (NNI) Stack Up Against its Peers?

NNI has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Financial Services (Enterprise) stocks with an A (Strong Buy) or B (Buy) rating: Forrester Research, Inc. (FORR - Get Rating), Essent Group Ltd. (ESNT - Get Rating), and Consumer Portfolio Services, Inc. (CPSS - Get Rating).

NNI shares were unchanged in premarket trading Friday. Year-to-date, NNI has declined -15.15%, versus a -19.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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