Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in g they're material to our investing thesis.
What: Shares of ITT Educational Services (NYSE: ESI ) are putting investors through the spin cycle today, first falling as much 18% on a bad earnings report before charging up all the way to an 11% gain later in the session.
So what: Earnings were way off estimates, as the for-profit educator put up a $0.41-per-share loss instead of the $1.80-per-share profit analysts had projected. Revenues also declined 18%, new student enrollment was down 11%, and EPS guidance came in below estimates at $3.50-$4.00 for 2013.
Now what: This sector has taken a hit across the board as the Obama administration has cracked down on the for-profit education model, which is heavily reliant on student borrowing, so today's revenue drop is not that surprising. If ITT's guidance is to be believed, then the financials seem to be bottoming out, as the decline in new students was less than the overall decline in enrollments. The company is projecting flat new student enrollment growth next year.
If those projections hold, this stock looks incredibly cheap, trading at P/E near 4 based on 2013 earnings, which seems to explain the late-morning run-up in the stock. Reform is needed in this industry, but I don't think it will disappear completely, so shares could bounce back as these schools stabilize.
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