UPDATE 2-First Marblehead results strong but stock weak

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NEW YORK, Oct 26 (Reuters) - First Marblehead Corp., (FMD.N: Quote, Profile, Research) which provides student loan services, on Thursday reported a higher-than-expected quarterly profit, but the company's shares fell nearly 2 percent as First Marblehead failed to give a clear outlook for this year's earnings.

Some investors wondered whether the company's growth prospects are strong enough to justify its valuation.

"Last year, First Marblehead had a low valuation and great growth prospects. Now it's selling at a higher one, and it's not clear how much faster it can grow," said Carl M. Birkelbach, chief executive officer of Birkelbach Investment Securities in Chicago, who recommended clients sell their First Marblehead shares last month.

First Marblehead earned $141 million in its fiscal first quarter, or $2.23 a share, after losing $5.4 million, or 8 cents a share, a year earlier, when it did not complete any of the secured financing transactions known as securitizations.

Analysts polled by Reuters Estimates had, on average, looked for $2.06 a share.

First Marblehead's stock has more than doubled in value this year, making it the top gainer for the period in the Dow Jones U.S. Financial Services index <.DJUSFI>.

The company's shares are trading at about 14.5 times expected earnings for the fiscal year ending June 30, 2007. Last year, that ratio was closer to the mid-single digits, Birkelbach said.

The positive outlook for student loans is partly responsible for the rise in the stock.   Continued...

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