Nelnet — Cash-Rich, Disciplined, Undervalued

Some companies thrive in the spotlight. Others quietly build value in the shadows.

Nelnet belongs firmly in the second category – and it remains one of my highest conviction holdings, with my confidence only strengthening over time. What started as a significant position in my portfolio has evolved into a cornerstone investment as the company continues to validate my thesis year after year.

When I mention Nelnet in conversations, I get the same response: a blank stare followed by polite confusion. No one has heard of this Nebraska-based financial services company, and most lose interest once I start explaining it. That persistent market blindspot creates the opportunity.

Two things prompted this write-up: my steadily growing position in the stock as it trades around $100, and a recent $410 million cash windfall from Nelnet's Allo Communications investment that the market barely noticed.

In typical low-key fashion, Nelnet announced a substantial financial win via an 8-K filing without even issuing a press release. Aaron Edelheit from Mindset Value highlighted this in a recent post, noting how Allo Communications, Nelnet's fiber internet provider, completed a refinancing that will send approximately $410 million in cash to Nelnet, resulting in a $175 million gain.

Nelnet acquired Allo in late 2015 and invested about $490 million in the fiber provider over the past decade. In 2020, they sold 48% of their stake to SDC Capital Partners for $197 million plus $160 million in preferred equity.