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  • oxledge oxledge May 24, 2012 5:37 PM Flag

    Crazy move in the shares....


    I was referring to the last 6 days of trading, that's all.

    Regarding the selling in the first quarter, ESI shares started the year at $56 and change. The shares rose to $75, a stunning 35% gain, at their February 17th peak. The share then closed the quarter at $66, a first quarter gain of 18%. I certainly understand why there would be some players that sold into this sizable up move in the first quarter. The first quarter gains were excellent.

    However, during the first quarter it was on February 27th that APOL dropped its earnings downgrade on the market and those shares fell from $51 to 43 in one day. APOL shares have since then declined to $32. On the day that APOL lowered its guidance and the next day, ESI fell a combined $6 per share ($74 to $68). The APOL announcement sent fear through the marketplace regarding education stock earnings - including me. It wasn't until April 25th that ESI was to report its first quarter earnings and so for the two month period from late February (APOL's announcement) and late April (ESI's announcement), ESI's shares sold off to $59.50 (this price being two days before the ESI q1 earnings announcement as speculation that ESI would disappoint rose and APOL's shares themselves continued to fall).

    ESI then on its earnings announcement reported eps that were not below estimate, but actually 12% ahead of estimates and the company raised its 2012 earnings guidance from $8.00 - 8.50 per share to $8.50 - $9.00 per share. They furthermore indicated that these earnings projections did not factor in further share buybacks and that the company had already in the first two weeks of the second quarter had repurchased nearly 1 million additional shares. In other words, ESI will most likely again be raising its earnings guidance again for 2012 when it reports second quarter figures. In addition, even after beating estimates handily, current analyst estimates were raised only from $7.95 to just $8.53 per share for 2012. Every analyst is at the low end of the range, as they were in the first quarter and as they were for every quarter all last year. We are just simply repeating same pattern as how things unfolded last year. Also in the quarterly conference call management also stated that student enrollment numbers were showing better signs given the number of applications and student acceptances so far.

    ESI shares clearly did not drop in the first quarter because institutions were net sellers. The stock went up significantly in the first quarter, regardless of what the institutions did. The decline in the shares in late February and since was not a result of any negative change in ESI's business relative to widely published estimates and expectations relative to other education companies - eg APOL. In fact, the results again have been well ahead of expectations. If you believe that this is a recipe for a correction due to overvaluation, then you got one on me. ESI shares trade at a mid single digit level, the balance sheet is awesome, free cash flow per share exceptional, and results are again ahead of what people have projected. I will readily admit that the company's business is down from the late 2010/early 2011 levels, but it is not down anywhere near what the bears have been projecting for the past two years.

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    • Given this, I think that the statement you make in your post lacks the appropriate perspective and seeing the stock down makes it easy to say it is "overvalued". ESI shares were just $66 on 4/30/12, up 18% for the year on that date. We are now a couple weeks later $56, flat on the year in what has been nothing short of a brutal month for stocks in general. The only "news" relating to ESI of any potential import was the 13F data (but that is all old news as the first quarter selling is long past and that selling did not drive down the share price). The only other news had been this CIDC fishing expedition.

      The CIDC is a new government bureau formed after the 2008 financial crisis in response to consumers getting hosed on mortgages that were completely ridiculous, eg the option ARM mortgages, and so on. The CICD is looking into all aspects of consumer finance, including mortgages, credit card, etc etc. This includes student loans. They will find nothing out of the ordinary in student loans, the bulk of which are written by the US government itself. Student loan terms are straight forward and are not complicated. I have never heard one complaint from anyone about the interest and principal repayment terms of a student loan. How are you going to complain about getting a loan at subsidized rates? What I hear about is that some people are having a hard time finding a job and without income, paying off a student loan is problematic during the period of unemployment. People also complain about the cost of education (but not the loan terms). The only thing that the CIDC could say is that the size of the loans is possible too large related to the income that the graduating student earns. But this is already a well worn topic and has been fully addressed by the DOE's gainful employment regulations. The CIDC will come up with nothing and the stock decline of $6 on the back of the CIDC "news" is just the typical knee jerk Wall Street reaction - sell now and do the asking and thinking later. Investors are totally unfamiliar with the CIDC and the sell first, think later approach is completely consistent with a situation like this.

      Frankly, I am quite surprised that you are not aware of all of the above detail and, that if you did now them, that you chose to made no mention of any of these points in your post.

      • 4 Replies to oxledge
      • If the GOV stopped subsidizing student loans what would that do to the schools recruitment? If there was a reduction in money available or an increase on the requirements for loans what would that do??

        That's the real short case to me. The fiscal wall is coming and the conservatives have been going after school loans. I don't think they will succeed but what if they did?

        Is there a business at all anymore if gov student loans are no longer available?

1.87-0.07(-3.61%)Jun 24 4:02 PMEDT