It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Today, we'll find an educator with a few lessons left to learn, a retailer in the middle of an identity crisis, and a casino resort that came up a few chips short.
You live, you learn
Our first miss today comes from job-oriented educator Career Education
But it gets worse. That $0.36 figure is a pro forma number, excluding a goodwill impairment charge of $85 million, or $0.85 per share. On a GAAP basis, Career Education came up with a loss of $0.49 per share. That's the result of an internal investigation of the health education segment, which concluded that the division wasn't meeting its performance targets and should therefore not be considered as valuable as previously thought.
That may sound like a theoretical problem, not a real one, and it's true that goodwill is an intangible asset class. But it has real meaning for potential takeover candidates, for example, and the government certainly cares, since companies pay taxes on goodwill values. Think of goodwill estimates much like home value estimates. It's a subjective estimation, but it has real business value anyway.
The impairment cuts the value of Career Education's health training services by about one-third, and it's far from the only problem the troubled education firm faces. The Department of Justice is investigating reports to the Department of Education that Career Education possibly understated education costs and overstated the real-world value of that education, all because incentive policies seem to motivate that sort of misreporting. And the total student body of the company's campuses shrank by 8% year over year.
The market's response to this brutal report was equally unforgiving; the share price tanked by 28% overnight, from a closing price that was already at a 52-week low. I'd love to say that I see deep value here, but in truth, the company doesn't appear to be very well-run. It's possible that we're witnessing just another turn in a drawn-out downward spiral. If you're looking for investment opportunities in the education space, you might want to consider Apollo Group
Where does this Gateway lead?
Let's move on to computer-systems maker and seller Gateway
The market disagreed, dropping the share price by 12%. Management claims to have a long-term plan in place to turn around the ailing professional-sales segment, and it also says we should see tangible results from that effort about three or four quarters from now. The CEO search is expected to bear fruit within the next couple of months, and perhaps whoever steps up to the plate can fix what appears to be the deeper problem here -- Gateway's identity crisis.
In the earnings conference call, Snyder said it's unclear what Gateway represents to customers and, in many cases, to employees as well. From my outsider's perspective, I can only agree. Take Dell
Never mind this report; check back later
That brings us to our last disappointment this week, in the form of Wynn Resorts
The bigger story here is Wynn's upcoming casino in Macau. The first phase of the gambling resort will open in September, and the second phase is slated for opening some time in 2007. If that doesn't sound like a big deal, you probably don't follow the casino business very closely. Gambling is illegal in most of the Far East, and this former Portuguese colony on the edge of China is a rare exception, which gives it a reputation as the "Monte Carlo of the Orient."
What to do?
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps and which really are stuck in the mud. Come back next Monday, and we'll take a look at another batch of mishaps and disappointments. It'll be fun and educational. Promise.
Further Foolish Reading:
- Learn more about the gambling opportunities in Macau.
- One Fool thinks Gateway might be for investors with nerves of steel.
- Get the lowdown on another education business.
- Take cheap when you can get it.
Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service ar e standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you.
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Fool contributor Anders Bylund holds no position in the companies discussed this week, and has never gambled in Macau or Las Vegas. The Fool has a disclosure policy, and you can see Anders' current holdings for yourself.