Bank of America just informed First Marblehead today that it was exiting the private student loan biz amid the turmoil (read credit crunch) to focus on the federal student lending program. STU (the 80%-owned sub of Citi [ticker C] announced this week it too was retrenching on the private student loan biz. Just waiting for Chase to announce the same thing. These were the three lenders that were supposed to step in to replace the 29% of revenues for ESI when Sallie Mae stopped private student lending to ESI 2/28/08. Hmmmmm.....government can't replace private student lending revenues.
attiles,I agree 100% with all of your recent assesments of this stock. I've been following it for the past 4 months and I missed the downside move to the mid $40's so I've waited until this retracement upside move is about over (which IMO it is already or 98% done).
The only thing that has kept me nervous about plunging into some July and October puts is that stupid/damn bill to "restore liquidity to the student loan financing market" by the House representative George Miller. The stock moved up a lot two weeks ago when the bill was floating around, but now it's up for passage at the house from what I understand...so do you or anyone on this board have any REAL/intelligent opinion about the legislative risk this bill has? I mean, I don't want to get crushed if investors take the stock up based on this bill. Any comments/thoughts?
The federal government will not let a school like ITT or Devry go down the tubes because kids can't get loans. They will change whatever law they have to in order to keep the career schools going.
here is my post on the just prior thread:
article link for H.R. Bill 5715 passed.
This only gives Dept. of Education Secretary authority to purchase guaranteed loans originated on or after 10/1/03 from lenders in the FFEL program with full discretion over the purchase price (which is scary), authority to repurchase such loans begins 7/1/08 and expires 7/1/09. Budgeted authority at a cost of $665 million (not billion, but million only).
Even if the Secretary doles out 10 cents on the dollar for packaged bad federal loans from lenders, the max. notional amount to be bought would be $6.65 billion, which is only 8% of the estimated $80 billion lent each year to students. If the purchase price is 50 cents on the dollar, max notional amount purchased would be $1.33 billion.
Doesn't seem to make that big of an impact once you read the fine print, but it will make some people happy.
Following up on this:
Now the bill has to go before the Senate. If the Senate makes any changes, it goes back to the House for revision for re-vote, then back to the Senate again. These things have to be scheduled, they can't just appear on the Senate schedule the next day after passing in the House. And since it is mid-April, we are getting closer to the July 1 implementation date. It is a possibility that the bill may not make it past the Senate.
Institutional ownership of ESI is high at about 96% and the total float is about 154%, meaning the stock is 54% shorted. You'd be hard-pressed to find any shares to short out there, meaning, the short-sellers will have to at some point close their positions, which could drive the price up temporarily. But once earnings come out 4/24 along with 2008 guidance, you'll see if some of the institutions unload some of their shares en masse if the earnings projections going forward are drastically reduced, considering the sub-prime private student loan biz is drying up.
If you are afraid of getting crushed, do a straddle at 60. That way, if it goes up or down massively but you're just not sure which direction it will go, you'll do OK.
I still think the full impact of the reductions in revenues and earnings won't be confirmed/evident until 2Q though. Then we'll know for certain of the valuation.
The glory days of free cash to anyone with a pulse, whether for homes, autos, credit cards, student loans are OVER.
In my opinion, HR 5715 was put together to appease some constituents, but I doubt it is going to put funding back to the level it was prior to 3Q 2007.
Sing "Kumbayyah" around the fire all you want, it's not going to make everyone happy, especially the students left out from the funding circus, and those that can't get enough funding to finish a semester or to even enroll for next semester.
APOL, which only received 4% of its 2007 revenues from private student loans, is down 25% from preQ1 earnings release (went from $60 to $45 now), after it missed earnings at $0.41/share from estimate $0.52/share, about 20% off the mark. ESI had 29% of its revenues in 2007 from private student lending. Are they supposed to be more immune than APOL from the fall-out? I think not. If ESI misses Q1 earnings by 35%, it might drop 45% to 50%.
The whole run-up in ESI from $42 to $60 is because of the proposed legislation, not from any inherent change at ESI. Investors hoping this legislation will improve ESI's valution by 45% are sadly mistaken. I'm just not convinced that ESI is even going to survive the year, given their precarious financial situation.
Their equity was $71 million at 12-31-07, or 34X book value now. That is absurd. It is the most leveraged for-profit education company by a large margin with a debt to equity ratio of 2.13 to 1. I think the next closest one is 0.6 DTE.
I just don't see it going higher on any rational basis of investing.
SLM p/e 9, this has to test 2002 levels around $26, no one in the right mind including government should give taxpayers money to subprime students and their parents with poor credit, let them work and go to school like I did, this Democrats want to throw our tax money down the drain.