Professors are generally regarded as a stodgy and humorless bunch. But don't be fooled by the straight faces. These guys can be a barrel of laughs.
Take the folks at ITT Educational Services (NYSE:ESI). Back in February, the company had its headquarters and several of its campuses raided by the FBI. While the specifics are still sketchy, it's generally thought that the feds sought evidence that ITT has been fudging its numbers on everything from admissions to grades to graduation rates. So now, with this huge federal investigation going on and shareholder class action lawsuits flying, out of the blue ITT President and Chief Operating Officer Omer Waddles decides to resign.
Ready for the punch line? ITT says -- with a straight face -- that the resignation was "unrelated to any of the matters in the ongoing government investigation of the company."
Har-har! Stop it, ITT! You're killing me!
Seriously, this is all very reminiscent of the goings-on at co-for-profit-educator Corinthian Colleges (NASDAQ:COCO), which saw its own president and COO, Anthony Digiovanni, abandon ship back in April. And in more ways than one. At the same time both companies are announcing high-level resignations in the wake of high-intensity federal investigations, they both continue to announce strong profitability from their operations. For that matter, so do most of their for-profit-educating compatriots: Career Education (NASDAQ:CECO), Strayer (NASDAQ:STRA), University of Phoenix (NASDAQ:UOPX), and Apollo Group (NASDAQ:APOL), for example.
So what's an investor to do? Despite all the scandals, for-profit educators are still raking in money, stealing market share from public institutions one day, co-opting them the next. Here's my take on the situation, and I will warn you that it is a controversial one: I suspect Wall Street is overreacting to the investigations -- at least in ITT's case.
You see, if the feds' suspicions prove correct, then one of two things could be going on. Either ITT misled investors with inflated enrollment figures, or ITT misled students with promises of good grades, easy graduation, and lucrative post-study careers. Or both. (Or neither.) The array of risks for ITT shareholders is frightening to behold. They range from SEC-imposed fines, to payouts to abused shareholders, to loss of federal education loan privileges for its students, to a loss of accreditation for its courses.
That said, these risks have been mostly priced into ITT's stock, the company remains uncharged with any crime, and the company's valuation is starting to look tempting. (More on that last part tomorrow.)
Fool contributor Rich Smith owns no interest in any of the companies mentioned in this article.
