After beating estimates twice in a row, Career Education
What analysts say:
- Buy, sell, or waffle? Fifteen analysts study Career Education. Four now think it's a buy, but nine more are still voting for a hold, and two say you should sell it.
- Revenues. On average, the analysts expect to see sales fall 12% to $408.2 million.
- Earnings. Yet profits may be up a penny to $0.23 per share.
What management says:
The big news at Career Education this quarter has consisted mainly of management changes. In August, CFO Patrick Pesch announced his departure from the firm to -- you guessed it -- "spend more time with [his] family." He's to be replaced by Michael Graham, poached from his perch as CFO of the privately owned Terlato Wine Group. Also joining the company in August was Thomas Budlong, a 23-year veteran of Wrigley, who will become the senior VP for "organization effectiveness and administration." Last but not least, Career Education gets a new chief marketing and admissions officer in the person of Leonard Mariani, who will be hopping over from a VP position at AT&T.
What management does:
Of the three, you have to envy Graham least of all, for he's getting the toughest job of the bunch: turning around a trend of declining gross and operating margins that stretches back more than a year and leaves Career Education badly trailing rivals such as Apollo Group
3/06 |
6/06 |
9/06 |
12/06 |
3/07 |
6/07 |
|
---|---|---|---|---|---|---|
Gross |
71.4% |
71.6% |
70.8% |
69.1% |
67.8% |
66.5% |
Operating |
21.3% |
20.8% |
18.0% |
14.4% |
11.9% |
10.0% |
Net |
12.8% |
7.4% |
5.6% |
2.6% |
1.4% |
4.6% |
One Fool says:
Analysts are hopeful that Career Education's new team will be able to turn things around and reverse the declines. Consensus estimates call for 34% earnings growth next year, tapering off to average about 11% per year over the next five years.
As an investor, though, I'd like to see much stronger growth than that -- in fact, I'd need to see much stronger growth, or a much lower stock price, before I'd invest. The firm has generated free cash flow approximately equal to GAAP net earnings over the past year, so valuation is a breeze on this one: With a trailing price-to-earnings ratio of 44 and estimated long-term growth at 11%, the stock looks as much as four times overvalued to me -- that is, it carries a PEG ratio of 4.0. Granted, a successful turnaround could change that growth rate in a hurry -- but at this price, it looks to me as though investors are pretending that the turnaround has already happened.
Need some remedial material on Career Education? You'll find it in: