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ITT Educational Services Inc. Message Board

  • valuehunter09 valuehunter09 Jan 21, 2011 1:39 PM Flag

    ESI Downgraded at Morgan Stanley

    And here comes some reality back into the equation

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    • Bull
      7x 2011E
      EPS of
      GE proposal is substantially softened and there is little impact
      on revenues, but growth decelerates as tailwinds abate. We
      forecast annual revenue growth of 2% (2009 – 2014E CAGR).
      6x 2011E
      EPS of
      Moderately impactful GE regs are enacted, putting some pressure
      on pricing and enrollment growth. New incentive compensation rules
      and firmer ad pricing also hinder enrollment and raise costs.
      Investments in career services, default management, and expansions
      further pressure margins. We forecast revenue decline of 2% (2009 –
      2014E CAGR).
      3x 2011E
      EPS of
      Strict GE regs are enacted. Separately, ESI consolidates
      PEAKS. Regs significantly affect ESI’s pricing. Investors reassess
      their valuation of ESI, considering a higher liability from PEAKS, now
      consolidated on the balance sheet. If consolidation is triggered by a
      regulatory event, we expect the P/E multiple to compress further.

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