Not that my posting anything here has any influence on ESI share price, I was thinking some about ESI again today in comparison to other education companies....
The issues re ESI are, as I see it,
1. New student enrollment numbers that have declined 15% year over year...this has lead to lower total student enrollment figures.
2. Financial risk associated with the 2009 RSA and the PEAKs private student loan guarantees that ESI has made.
3. Corporate decision to use all free cash flow to extend short term (9-15 months) student loans to some students. This use of funds has resulted in the stock buybacks being halted - for the time being.
4. Company's exposure to Associates Degrees. ESI's Bachelor Degree business is smaller than those of the other leading education companies (APOL, DV, STRA, etc).
5. New Dept of Education regulations.
ESI shares did not start its serious decline until July 2012. It was at that point that the change in ESI's cash flow usage appeared in the quarterly report. Earnings for the period were slightly below estimate, but nothing earth shattering. I recently listened to that conference call and management reiterated that the 2012 earnings estimates were good at $8.05. The most recent drop from $19.50 to $15 was on news of the SLM 2007 RSA settlement.
I thought that the RSA settlement was a good thing. Get the issue behind the company and provide some basis to judge the 2009 and PEAKs exposure.
The cash flow situation should temporary as student pay off their short term ESI loans and ESI has reserved for any losses there (we will see if the reserves are adequate). The temporary use of free cash flow to offer students short loans has put the stock buyback program on halt. Investors had gotten used to ESI's stock buybacks as a good backstop to the share price.
The risk for the 2009 RSA and the Peaks program risk can be defined by using the 2007 RSA settlement numbers. So that risk is now quantified.
Future enrollment numbers are impossible to predict and are a risk. What is not a risk is the number of high school students each year that do not go to college or fail to graduate college. Each year this number is several million. These kids need to find alternative vocational education programs which provides some underlying demand for ESI. I think that maybe this is why ESI said in its past conference call that I just listened to that there has been no drop off in new student inquiries at ESI -- only a drop off in the conversion rate from inquiry to new student.
I don't think that ESI has seen any greater new student enrollment drop off than any other education company. In a number of cases, ESI's decline is less than the other company's decline.
Regarding new regulations on education, the Dept of Ed just put through a massive new regulatory program.
Not sure why ESI shares trade at such a massive discount to the other education companies. I wonder what I am missing, if anything, on this point. E.g. Devry trades at $25 and 2012 earnings are $3.22/share. ESI at $14 with $8.05 in earnings. Devry 2013 earnings are to be $2.15 on a $25 stock. ESI earnings slated to be $5.00 on a $14 stock. Same comparisons hold for the other education companies - APOL, STRA, etc. If ESI got a Devry valuation, shares would be at $60.