When Education Lending Group (EDLG ) sold 2.6 million shares in a secondary offering at 10 a share on Nov. 3, Donald Gimbel, senior managing director at investment bank Carret, wanted 100,000 shares. He got only 10,000 of the oversubscribed offering. So he hiked his shares to 80,000 by buying on the open market. The stock hit 14 by Nov. 26, eased to 12 on Dec. 16, then bounced back to nearly 14. Gimbel has been buying again. He sees the stock at 25 in 18 months.
What's the allure? EDLG deals in government-guaranteed student loans. But Gimbel likes its niche business of consolidation loans that let college kids pay, in lump sum, other debts -- on credit cards, cars, and the like. EDLG offers other financial-aid products, but consoli- dation loans, says Gimbel, will be the big winners. The "cost of education is accelerating at a rate faster than income growth," says Audrey Snell of Brean Murray, who rates the stock a strong buy. EDLG, the smallest of six major student loan providers -- Sallie Mae (SLM ) and The Student Loan (STU ) are among the biggies -- has the management to build profits to 98 cents a share in 2005, from 40 cents in 2004, up from a 56 cents loss in 2003, he says. It's been in the red since starting four years ago.
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