Nelnet (NYSE: NNI) and Alliance Data Systems Corporation (NYSE:ADS) are both mid-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, risk, valuation, analyst recommendations, earnings, institutional ownership and profitability.

Valuation & Earnings

This table compares Nelnet and Alliance Data Systems Corporation’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Nelnet $861.56 million 2.33 $255.88 million $6.16 7.86
Alliance Data Systems Corporation $7.41 billion 1.64 $1.47 billion $8.78 24.93

Alliance Data Systems Corporation has higher revenue and earnings than Nelnet. Nelnet is trading at a lower price-to-earnings ratio than Alliance Data Systems Corporation, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Nelnet has a beta of 0.98, suggesting that its share price is 2% less volatile than the S&P 500. Comparatively, Alliance Data Systems Corporation has a beta of 1.76, suggesting that its share price is 76% more volatile than the S&P 500.

Dividends

Nelnet pays an annual dividend of $0.56 per share and has a dividend yield of 1.2%. Alliance Data Systems Corporation pays an annual dividend of $2.08 per share and has a dividend yield of 1.0%. Nelnet pays out 9.1% of its earnings in the form of a dividend. Alliance Data Systems Corporation pays out 23.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Nelnet is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Nelnet and Alliance Data Systems Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Nelnet 20.19% 9.65% 0.75%
Alliance Data Systems Corporation 6.77% 59.67% 3.74%

Analyst Ratings

This is a summary of current ratings and recommmendations for Nelnet and Alliance Data Systems Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Nelnet 0 2 0 0 2.00
Alliance Data Systems Corporation 3 7 10 0 2.35

Nelnet presently has a consensus price target of $50.00, suggesting a potential upside of 3.26%. Alliance Data Systems Corporation has a consensus price target of $253.44, suggesting a potential upside of 15.79%. Given Alliance Data Systems Corporation’s stronger consensus rating and higher possible upside, analysts plainly believe Alliance Data Systems Corporation is more favorable than Nelnet.

Insider and Institutional Ownership

40.9% of Nelnet shares are owned by institutional investors. Comparatively, 96.1% of Alliance Data Systems Corporation shares are owned by institutional investors. 45.4% of Nelnet shares are owned by company insiders. Comparatively, 2.6% of Alliance Data Systems Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Summary

Alliance Data Systems Corporation beats Nelnet on 11 of the 16 factors compared between the two stocks.

Nelnet Company Profile

Nelnet, Inc. focuses on delivering education-related products and services and student loan asset management. The Company is engaged in student loan servicing, tuition payment processing and school information systems, and communications. The Company’s segments include Loan Systems and Servicing, Tuition Payment Processing and Campus Commerce, Communications, Asset Generation and Management, and Corporate and Other Activities. The Company earns fee-based revenue through its Loan Systems and Servicing, Tuition Payment Processing, and Communications operating segments. In addition, the Company earns interest income on its student loan portfolio in its Asset Generation and Management operating segment. Corporate and Other Activities include real estate and other investments. The Company, through Allo Communications LLC, is engaged in the sale of advanced telecommunication services, including Internet, broadband, telephone, and television services.

Alliance Data Systems Corporation Company Profile

Alliance Data Systems Corporation is a provider of data-driven marketing and loyalty solutions serving consumer-based businesses in a range of industries. The Company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs. The Company operates through three segments: LoyaltyOne, which provides coalition and short-term loyalty programs through the Company’s Canadian AIR MILES Reward Program and BrandLoyalty Group B.V. (BrandLoyalty); Epsilon, which provides end-to-end, integrated direct marketing solutions, and Card Services, which provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the Company’s private label and co-brand retail credit card programs.

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