Where did the summer go? On Main Street, U.S.A., it's almost time to head back to school. And on Wall Street, it's time for the for-profit educators to turn in their summer earnings book reports. Next up: Career Education (NASDAQ:CECO), which reports on Q2 2007 Wednesday afternoon.

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts study ambivalence at Career Education (CEC). One says "buy," two say "sell," and a baker's dozen sit on the fence with hold ratings.
  • Revenues. On average, they expect quarterly sales to fall 15.5% to $411.4 million.
  • Earnings. Profits are predicted to suffer even more, down 28% to $0.26 per share.

What management says:
If actions speak louder than words, then consider what CEC told us back in May. It announced that it had nearly exhausted its $500 million share repurchase authorization, but it still wanted to buy more. The board of directors upped the buyback by another $300 million. With the share price now down about 10% from the average price CEC paid for all the previous shares, one would expect to see CEC run through the additional three hundred mil pretty quickly. It's a bargain, right? Right?

What management does:
Maybe, maybe not. (We'll crunch the numbers in a moment.) After all, the CEC of today isn't what it was in the past. Each of the firm's rolling margin numbers -- gross, operating, and net -- has been sliding for the past four quarters. This business just isn't as profitable as it used to be.

Margins

12/05

3/06

6/06

9/06

12/06

3/07

Gross

70.9%

71.5%

71.2%

70.3%

69.1%

67.8%

Operating

21.4%

21.9%

20.5%

18.2%

15.5%

13.1%

Net

12.8%

12.8%

7.3%

5.5%

2.6%

1.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Whether the shares are still worth buying is, to the Foolish mind, a question of valuation. Over the last four reported quarters, CEC has generated $114 million in free cash flow. Granted, that's a heckuva lot better than the $64 million in net profit it was able to report under GAAP. Still, at the current stock price, CEC's shares fetch 25 times trailing free cash flow.

Meanwhile, analysts expect CEC to grow at 11% per year over the next five years. That's decidedly subpar compared to rivals like Apollo Group (NASDAQ:APOL), ITT Educational (NYSE:ESI), Strayer (NASDAQ:STRA), and DeVry (NYSE:DV). In short, CEC's current multiple seems like a steep price for lackluster growth.

So call me cheap. Call me thrifty. But don't call me with an offer to buy CEC stock, unless it gets materially more profitable, or much cheaper, after tomorrow's report.

Need some remedial education on CEC? You'll find it in:

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy has class.