"Applying a discount rate of 10% on future cash flows which is growing at 10% yields a PE of 20. This means with no detrimental events, and with a dramatic leveling off of growth rates, FMD is worth about $88 per share. If all of the following adverse events occur: 1) BoA departs (15% hit to revenue), 2) margins shrink to 12.5% (banks now get 7.5% in marketing fees), 3) receivables value is halved to $400M, and 4) loan growth rate slow to 5% (I assume educational expense growth will always outpace inflation slightly in the near-future), the loan securitized in 2008 drops to $3.94B, and after the 15% hit from the departure of BoA becomes $3.35B. A 12.5% margin gives ops earnings of $418M, or net income of $251M, for an EPS of $2.69. Applying a discount rate of 10% to a future cash flow growing at 5% yields a PE ratio of 14, or a value of $37.66 due to cash flow. With the receivables valued halved to $4.28 per share, that gives FMD a very conservative value of about $42. Therefore, the intrinsic value of FMD is in the range of $42-$88 (not taking into account value added through share buyback shrinking share base), and we are currently below the lower end of that range. In the final analysis, I think investing in education is perhaps one of the best investments one can make in a lifetime, and continued growth in demand for student loans and spiraling educational costs will fuel FMD's stock price for quite some time to come. " So if they ever get someone to guarantee the loans or sell the company then FMD is headed alot higher.
I am willing to ride it down to $ 0/sh so worst cash $ 4,000 loss, but if it hits $ 15/sh, then I would make $ 11,000. Hoping for someone to guarantee the loans or a buyout.
Next up is JPMorgann to lose as client http://www.reuters.com/article/marketsNews/idUSN1715497820080417 So no one will touch these guys. The private loan sector at inflated rates is worthless. The FED will get the loans for kids but not in the private sector so there is no use for FMD. So I bought a subprime student loan lender basically?
Probably a good move EC, I rolled my stock in to the May 5 calls at 0.52 av X 377 so will be sticking with them through the earnings call on the 23rd, trying to get out here with the spread would decimate the position. Given the news today and the Teri news looks like the floor should be about $3 for the stock. They might have something good to say and it can't get much worse, still a good RR here as far as I can tell though it was disappointing to see SLM take off on the congressional news and leave FMD in the dust.
Barring any positive congressional developments it looks like they won't have anything positive to say about the student loan biz on the 23rd and I wouldn't hold my breath for another insurer at this point. I think the best that they will say is that they are looking to morph themselves in to some sort of Internet type direct lender/ bank like Key for example. What the stock will do on that news is anyone's guess but it might trade down to the $2s as they will have a burn rate to implement.
I re averaged back down today, and on that 50c up day 2 or so days ago brought my size down ... we are trading at cash, and this latest news only confirms the biz's future pressures (which are assumed to start). Worked my average down the other day from 4.12 to 3.64 on the same # of shares for a full position. nice how that worked out. Forget burn rate guys; they are entitled to substantial residuals based on the several billion in past outstanding securitizations. They'll be showing nice quarters going forward if they pare down the workforce quickly enough. Just buy this here and forget about it.. Likely in a while something will materialize here.