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NOVEMBER 14,
2005 • Editions:
Edition Preference
First Marblehead: Solid  First
Marblehead (FMD ),
which processes student loans for banks and private lenders, hit 73 in
March but has since tumbled -- to 21 on Oct. 7 -- in good part because of
missed sales targets and worries that the new bankruptcy law will deter
students from borrowing. Now the stock is back up to 32. Carl Birkelbach
of Birkelbach Management was quick to buy in. "The stock has huge upside
potential as earnings continue to ratchet up," he says. Since 2001, when
First Marblehead went public, earnings have shot from 4 cents a share to
$2.39 in fiscal 2005, ended June 30. For 2006, Standard & Poor's (MHP ) sees $3.10. First
Marblehead collects fees from banks and other lenders for servicing their
student loans. Birkelbach predicts the stock will hit 43 in a year. On
Sept. 28, Chairman and CEO Daniel Meyers had to quit after it was learned
that he had exchanged gifts with an employee (since resigned) of Bank of
America, a major client. The stock reacted -- investors feared BofA (BAC ) might cancel its
contract. But Birkelbach doubts BofA would pull out. And so far, no such
thing has happened, notes Joseph Halpern of Halpern Capital, who owns
shares and rates the stock "outperform." The stock trades at nine times
2005 profits He sees it climbing to 46, or 15 times projected 2006
earnings. "Given the robust earnings in 2006, a 15 p-e ratio is
"conservative, at the least," says Halpern. Zacks's 2007 consensus
estimate is $3.51 a share.
.gif){kind=spacer} Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.  By Gene G. Marcial
BW
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