ITT Educational Services (NYSE: ESI) ended 2010 well. In its Q4 earnings released Thursday morning, the company reported revenue and earnings of $410.1 million and $3.14 per share, respectively. For the full year, the for-profit education company reported revenue of $1.6 billion and earnings of $11.17 per share. ITT met or exceeded average analyst expectations.
Despite the solid numbers reported by ITT and University of Phoenix parent, Apollo Group (Nasdaq: APOL) for 2010, the future looks cloudy for the industry. The for-profit education industry is under the microscope of government regulators for its student loan repayment rates, graduation rates, and marketing and recruitment tactics -- and the scrutiny is impacting the outlook for the future.
In its earnings release, ITT reports that it expects 2011 earnings per share to be in the range of $8.50 to $10.50 per share, a drop of 6% to 31% from its 2010 results. Yet despite the gloomy forecast, ITT's stock bounced as much as 11.6% higher during trading, suggesting that analysts and investors thought the news would be worse. In addition, ITT and other stocks in the for-profit education industry look cheap, though I'm not convinced they are as cheap as they might appear.
New student enrollments, a key indicator of future revenue, are falling. ITT reported that its new enrollments were down 9.4%, while in the same quarter last year, they grew 31.2%. This drop in new enrollments is not unique to ITT. Apollo and Strayer Education (Nasdaq: STRA) recently announced much larger year-over-year declines, reporting drops of 42% and 20%, respectively, making me wonder if larger drops are on the horizon for ITT.
I expect 2011 to be bumpy for ITT and other big names in the for-profit education sector and would take a wait-and-see approach with the stocks. To stay abreast of ITT and the other for-profit educators mentioned in this article, add them to your watchlist.
