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ITT Educational Services Inc. Message Board

  • janelandmatt1 janelandmatt1 Oct 21, 2010 4:28 PM Flag

    Long-term value play

    So the negatives are obvious and noted regularly in the media and financial media about daily these days.

    --Negative issue and uncertainty with regulation.
    --Growth rate (negative short-term) based on that.

    But still...
    --The stock is trading at 5X 2010 earnings.
    --With unemployment still high and no-education jobs like mfg continuing to disappear, there is a need for some kind of education/training.
    --Even if you do a reset by dropping 2011 by a HUGE 25%, you still get a PE ratio of about 7X in a business that should have decent growth potential from its bottom.
    --The biggest negative is projected to get better in about 3 weeks. IF republicans take a bunch of seats in the upcoming election much of the regulation, rules and overhead that started the whole mess will be slowed if not stopped.

    Rough math says the following:
    -2011 EPS fall 20-25% to $8-9.
    -The political overhang becomes less negative and more defined over the 1st 2-3 months of a new Congress.
    -The PE resets to something at least reasonable like 8-10.
    -With uncertainty reduced, the value players jump in and stock rises to a reasonable $65 (PE 8 X $8 2011 EPS) to $90 (PE 10 X $9 2011 EPS).

    At the point where everything that can happen negative has already happened, the path is up with even just a slowdown in government regulation even if the business is still slow.

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    • Republicans are sick. They blame Obama for the defict then they want to flush money down the drain on students that pay back their loans in the teens. That is not fair to the government. bush increased the federal budget from 2.1 trillion to 3.0 trillion and didn't pay for it. The present deficits are 100% responsible by the republicans.

    • While I do agree on some of your current metrics concerning this stock. I don't think the Repubs will be able to reverse anything because the President still has Veto power and the congress is likely to end up split. So at most we are looking at gridlock in Washington. Finally what started the whole mess didn't start in 2008. It start far before then and the current situation is only the blowback from bad policies over many years.

    • I'll take 5% today. Buying on dips has been easy $.

    • i bought quite a bit of this at 55 and i agree the risk reward is in the longs' favor but I think your reasoning is over simplified.

      The fear is a far more than 25% hit to earnings. If ESI is forced to cut tuition cost by 15% to give students a better value that 93.2 million (MRQ) in income is reduced by 60 million to 33.2 million. The problem with dropping tuition is fixed cost remain the same but revenue drops. This equates to a new EPS/year of ~ $3.95. At a traditional P/E of 15x (which is about right going forward since growth is slowing) that gives you a price of $59; that efficient market is a cruel lady isn't she?

      The market has prices in a revenue drop of 15% and cost remaining fixed. As a value investor you have to ask yourself, is this reasonable or overblown. Everything I have read about the company suggests the 90-10 ratio is going to remain in the 70's and the company is going ahead business as usual.

      I'm not too worried about ESI because unlike Apollo with 95%+ government backed loans ESI stays in the 70% range and finances through their own financial institution. The company has also realized very little detriment to business as a result of the bad press. I'm willing to bet ESI will continue as usual and should be valued at 15x eps.

    • What you are saying is republicans can come in so they can give loans to people that will not repay them? Is the republican party the party of brats and dopes. Bush increased the budget from 2.1 trillion to 3 trillion and they still don't want to pay for it by letting the tax cuts expire. It is the same as letting your kid run up a credit card and the kid expecting you or the trust fund to pay for it.

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