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We came across a bullish thesis on Nelnet, Inc. (NNI) on Substack by Chit Chat Stocks. In this article, we will summarize the bulls’ thesis on NNI. Nelnet, Inc. (NNI)'s share was trading at $111.69 as of Nov 11th. NNI’s trailing and forward P/E were 35.68 and 15.75 respectively according to Yahoo Finance.
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Nelnet’s stock saw recent volatility following Trump’s election news and a Q3 earnings report that caused a double-digit drop. As a diverse conglomerate, Nelnet’s segments reveal mixed performances this quarter. Nelnet Diversified Services, which handles loan servicing, is now under a new federal contract and currently unprofitable, though cost-cutting could lead to a return to modest profitability. However, its impact on Nelnet’s overall $4 billion market cap remains limited.
Nelnet Business Services, which manages education software and payments, is thriving. With steady revenue growth and strong operating margins, this segment’s performance continues to improve, likely valuing it at around $2.5 billion. Meanwhile, Nelnet’s Asset Generation and Management (AGM) segment, focused on its legacy student loan portfolio, reported a significant loss of $16 million in Q3. This was largely due to substantial write-downs related to loan securitizations, debt, and derivatives, though management projects the segment will still yield $1.18 billion in cash flow over time.
Nelnet Bank, a recently established arm to oversee loan operations previously managed by AGM, faced challenges, posting a $5 million net loss due to loan losses. Although lending beyond student loans is proving difficult, Nelnet’s historical experience in this area provides hope that the bank will adapt successfully in the future. Nelnet Financial Services’ “other” segment generated $14 million in profit, driven by gains on investment securities, though details remain sparse.
Nelnet also has a substantial investment in Allo Communications, a fiber-optic provider. While previous accounting complexities impacted earnings, the company has started realizing steady income from its investment, with $6.6 million in earnings this quarter. Additionally, Nelnet’s solar panel construction business, acquired recently, has been hit hard; the company is exiting the residential solar market following a $10 million quarterly loss, though it anticipates stabilizing the business in time. Its solar financing investments, while generating paper losses due to tax credits, hold long-term cash flow potential.
Despite recent struggles across several segments, Nelnet remains positioned to grow shareholder value. The education and payments software division alone produces over $100 million in annual cash flow, while Nelnet’s bank, solar investments, and Allo Communications stake add future growth potential. Nelnet also holds significant venture investments, including a 20% stake in HUDL, likely worth several hundred million dollars. With a cash flow-rich portfolio, a proven management team, and continued shareholder returns, Nelnet appears undervalued, with an estimated worth of $6 billion against its current $4 billion market cap, solidifying its place as a key portfolio position.