ESI has a market cap in the $200-$300 million range and cash on the balance sheet is at the $200-$300 million level. And despite all the short seller spam and disinformation regarding the sector, The leading companies are all very profitable. ESI is to earn almost $90 million this year, under really tough conditions. It used to be that for a stock to trade at its cash level, it had to be losing money or be a complete basket case. This is far from the situation with ESI.
Correct. And they own 42 buildings, subject to no mortgage debt according to their 2011 Annual report, see page 30:
As of December 31, 2011, we:
• leased 128 facilities used by our campuses and learning sites;
• owned 42 facilities used by our campuses; and
• leased seven facilities that are intended to be used by new campuses in 2012.
Assuming each owned building is approximately 25,000 SF and has a reproduction cost of $200 per sf, they own $210,000,000 of real estate, debt free. The book value of these properties will reflect the taxable fully depreciated value of the properties, so book value will be understated significantly. But the properties themselves are worth almost $10 per share. Add in the cash of $10 per share and you have a liquidation value of approximately $20 per share. If the company earns 2.50 per share in 2013 and trades at a PE ratio of even just 10, the company should be worth $25 per share, with an additional $20 for the cash and buildings, which leaves you at approximately $45 per share, more than triple where we are now.
I have never seen anyone discuss ESI's real estate holdings in a way that attaches a firm number to it. I am a bit mixed on the analysis. ESI needs the real estate to operate its business, so it is hard to separate the value of the education earnings from the value of the real estate. I guess ESI could do a sale leaseback on its owned real estate and that would "unlock" the hidden real estate value. But then ESI would have to make high office lease payments - so it is not 100% gravy from the sale of property proceeds. ESI also has lease obligations on 128 facilities and these payments are probably looked upon by some as debt service type payments. In any event I have to say that I have NEVER EVER EVER seen such a profitable, well established (ESI has been around for many decades) company trade at such a low valuation. The valuation parameters have establish a new low for a profitable company. The only explanation for this price must be some fear of bankruptcy or concerns that ESI will generate some massive losses. I do not think that even the current issues regarding private student loan financing can account to the current share price levels. ESI already too large charges to address the private student lending guarantees. Even if there were more to write-off, I can not see how it could be so large as to put the company in some kind of bankruptcy situation.
I agree. A quick DCF valuation using the avg analyst EPS estimate of $3.72 and a growth rate of 5.8% for 5 years and 2% (GDP) after that discounted at 12% will get you an intrinsic value of about $44. Almost 70% margin of safety!