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ITT Educational Services Inc. Message Board

  • aaatiles aaatiles Mar 18, 2008 11:56 PM Flag

    ESI really worth 29X Book Value? - Part 1

    Part 1
    $2.05 billion market value on $71 million common stockholder equity = 28.9X book value. Sounds astronomical by any standard!!
    All of the following information is from the Company's filed 2007 10-K found on-line at [EDGAR reports]:
    1.) 29% of 2007 revenues were from unaffiliated private student loan programs by Sallie Mae (ticker SLM), which was terminated 2/28/08. Were they replaced? Management said they are trying but I don't believe it has been confirmed any lenders have stepped in and at what terms?
    2.) For the company to continue participating in the Title IV programs, which were 63% of 2007 revenues, company must maintain an "ED Score" of 1.5 to be deemed financially responsible. ESI scored 2.2 in 2006 and fell to 1.9 in 2007. Purchasing shares in the open market lowers this score. ESI purchased $265 million of its shares at an average price of $99.66/share in 2007 and purchased another $68.4 million of its shares at an average price of $84.51/share in 2008 through 2/15/08 (current price is $51.67). This can only lower the score further in 2008. If ESI goes below 1.5, it may be required to post letters of credit or accept other limitations to continue to participate in Title IV programs (63% of its 2007 revenues, remember), state authorization or accreditation! If it gets bumped down on Title IV participation, then there is a going concern issue.
    3.) Sallie Mae stopped providing student lending 2/28/08. 10-K says that it may have to provide internal funding to finance student loans and this may cause ESI's receivables to increase and student population [and revenue] to decrease.
    4.) 2007 assets $541 million, liabilities $470 million, equity $71 million
    2006 assets $560 million, liabilities $456 million, equity $104 million
    2005 assets $592 million, liabilities $284 million, equity $309 million
    Assets decreasing, liabilities increasing, equity decreasing. How is this good value?
    5.) student retention averaged about 75% over last three years, which means that of all the "freshman" started, roughly 75% make it to "sophomore" year, of those 56% (75% times 75%) make it to "junior" year, of those 42% (75% X 75% X 75%), make it senior year, of those 32% graduate (75% X 75% X 75% X 75%). Seems low compared to typical 4-year universities at around 48% to 50% graduation rates.
    6.) $869,508,000 2007 revenue divided by 53,027 students equals $16,406 revenue/student/year. at 36 credit hours per year, that comes to $455/credit hour. It takes the student 3.75 years to graduate with an undergraduate degree, or about $61,522 in costs without considering ESI's average 5% annual tuition increase. Seems outrageous for a program where, if you leave mid-stream, credits don't transfer to a regular community college or 4-year university. Could students get cheaper education at a 2-year local community college and then transfer to a 4-year university?

    Continued on Part 2

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