The First Marblehead Corp (FMD)

jstran (32.33) Submitted: 5/13/08 6:48 PM : Start Price: $3.34 FMD Score: -21.80

5.38 in book value.
$120 million in cash; about $2 in cash for a 2.55 stock;
RBC analysis seems interesting: $1 price target, yet his earnings show .50 The analyst is calling for P/E of 2?
Dividend: conference call stated dividend in .25 range with earnings covering the dividend. Now we know why they were piling up the cash, in case there were issues.

IMB has announced deferal of their payment which was only 2% of companies and AFN stated it would take off .02 of earnings. HOWEVER, it forced 5 of their trups into OC test. This is a significant hit and is why the stock is in freefall. While in deferal, those earnings still count for AFN, but they don't get the cash. If IMB starts paying again, the stock will move back up, if not, then a serious problem.

Still, for risk / reward. I still think in 5 years time, it will outperform. $120 million in cash easily covers the dividend for quite a while. They have $2 in cash - I see the stock rising higher than being worth less than its cash.

The company mentioned in the conference call they are having a commitee looking at alternatives - including de-REIT, staying a REIT and other options. Even if bought out, they should be bought out for at least book value, which would be a great increase.

I re-iterate my outperfrom at 2.55 and believe the reward outweighs the risk. However, momentum players are in control for the short-term as it is a hated small-cap stock with bad press. But I believe it will survive, and if it does will easily beat the benchmark.

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