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Career Education Corp. Message Board

  • watchthedownside watchthedownside Oct 24, 2012 4:58 PM Flag

    $680mm of Present Value Off-Balance Sheet Rent

    plus $100mm of deferred existing rent = $780mm in adjusted balance sheet true debt

    versus $370mm of cash and short-term investments

    hate to break it to you folks, but the $370mm is not excess cash.....no way, no how

    also, I have CECO losing close to $150mm - $200mm over the next two years

    further, as I have been warning since the stock was at $7 to $8/share, CECO is most at risk in the sector in terms of truly being in secular decline

    I continue recommending swapping into COCO - there is no reason at all for the shares of these two companies to trade differently in terms of price.....obviously the spread has narrowed from $13/share in October 2011 to less than $1/share today, but I have been warning, and not sure who has been listening

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    • With all due respect, you have been right about the direction since it was $8. But you can't deduct rental obligations from net cash to come up with a negative valuation. No way no how. That is all paid from their $1.4B in revenue as part of OPEX. Their cash burn last quarter was less than $1M after all expenses were paid. Most of thier GAAP loss was a writedown. Looking at their last balance sheet, they had $1.14B in assets and $437M in liabilities. Even if you writeoff the entire goodwill of $131M and discount their property, plant and equipment by 50%, that is still $846M in assets. Subtract the two and the book value is $409M or little over $6/share under the worst case scenario.

      As for secular decline, that is how it looks currently but other FPC CEOs are saying that the industry will turn around in 2013. CECO is saying the same thing with 2012 being the year of transition. Also if Romney becomes president, all FPC stocks will shoot up.

      All that being said, it looks like it wants to test $3 if the ER is nothing short of spectacular. I think management knows that too and hence not buying back shares yet. I am on the sidelines for now.

      • 1 Reply to betasplen1
      • You must have never taken an accounting course nor had credit training.

        Any Credit Analyst (at Moody's, at any buyside firm or during my many years of credit experience) always assumes 8x rents, less implied interest. That is how you come up to $680mm. And yes, any cash and equivalents is always (and I repeat always) netted against debt (including the present value of operating leases) to see if any cash is truly excess. In the case of CECO (and most other for-profits), the cash is not excess. CECO has net debt of over $300mm, not net cash. Ask any Analyst and they will agree with me (and clearly investors agree given where the stock price is trading).

        Also, as a side bar, you have to actually be earning cash for the market to not think too much about the present value of operating leases.....and CECO is now losing free cash flow and looking forward over the next two years, CECO should continue to lose free cash flow, not earn it.

        Normally I love companies with a negative enterprise value, but CECO is not (definitively not) one of those companies.

        Further, this company may be in secular decline because organic revenue growth for CECO for the five years leading up to the recent peak in revenue was 0.0% per year. CECO is the only for-profit that looked dead on arrival as the for-profit sector began to transition from a growth business to a mature business. APOL,, ESI, COCO all had nice organic annual revenue growth of 7% to 13% for the five years leading up the recent painful transition.

        There are too many wonderful choices in this sector to waste your time with the one company that has a decent probability of not being a good investment.

        In general, and no offense intended, your comments reflect a lack of knowledge and experience that remind me of myself 15 years ago.

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