Why ITT Educational Services Shares Fell

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 case they're material to our thesis.

What: Shares of ITT Educational Services (NYSE: ESI  ) were flunking out today, falling as much as 23%, and finishing down 21% after an underwhelming fourth-quarter earnings report.

So what: The for-profit educator has been particularly volatile during the past year, and that pattern continued as revenue fell 12.6%, to $262.9 million, though that actually beat estimates of $260.9 million. Meanwhile, the company saw its per-share loss grow from -$0.41 to -$0.49, as overall enrollment dropped 5.8%, to 57,542. As a silver lining, new student enrollment ticked up 4.5%, to 13,995, but continuing students fell 8.6%, a sign that dropouts are increasing, and that students are perhaps not finding the school worth their investment.

Now what: The for-profit education industry tends to track as a whole, and the group of stocks has begun to battle back recently after two years of sharp declines. The fourth quarter is generally a weak one for ITT, so the loss should not be so surprising. In its earnings call, management forecast EPS for 2014 of $3.00-$3.65 compared to the analyst average at just $3.11. That range would be better than its 2013 total of $2.52, meaning now could be a good time to invest. Still, I'd like to see student enrollment and revenue numbers moving in the right direction first.

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  • Report this Comment On January 31, 2014, at 12:32 AM, HDTVBG wrote:

    #DiplomaMills feasting on #GovernmentGrants and #StudentLoans will eventually be driven out of town, but not until Guantanamo is shuttered first <GRIN>.

    Also, beware of shiny trade unionist style do-gooder Orgs looking to supplant these for-profits with non-profit toll-gates feeding newly trained politically correct Gov subsidized re-employment candidates to age discriminating dot-communist businesses. See here -- http://www.bloomberg.com/news/2014-01-29/for-profit-colleges...

  • Report this Comment On January 31, 2014, at 9:32 AM, tomryannova wrote:

    Unless I'm misreading it, the article doesn't seem to shed a lot of light on why it might have fallen so much so quickly. Any other ideas?

    I don't like conspiracy-type theories, but it did happen to be one of the most shorted stocks on the market. With the relatively light regular volume, is there any kind of leverage or manipulation that could be occurring in connection with this?

  • Report this Comment On January 31, 2014, at 1:11 PM, PRODOD wrote:

    It seems obtuse to try to explain the 20% drop in ESI without any mention of the fact that their business practices are under investigation by no fewer than 14 AG's, the SEC and CFPB. Any one of these investigations could destroy ESI's business by cutting off their access to the federal funding of student loans.

    Jeremy, you should be 'taken to the woodshed' for willfully ignoring this fact. Jeezz! LOL

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