ITT Educational Hits 52-Week Low - Analyst Blog

On Jun 02, 2014, shares of ITT Educational Services Inc. ESI touched a 52-week low of $16.42. ESI's share price has been declining ever since it withdrew its previously provided guidance for the year on May 22. Shares of ITT Educational Services eventually closed at $16.71 on Jun 02, with a year-to-date return of -50.5%.

What Led to the Drop?

Since the release of the preliminary results for first quarter 2014 and withdrawal of guidance for fiscal 2014, shares of ITT Educational dipped 18.5%.

On Mar 18, 2014, ITT Educational submitted an enquiry to the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission (SEC) related to the accounting treatment of the PEAK Private Student Loan Program in the company's financial statements. However, the company is yet to receive any response from the authority and therefore finalization of its financial statements for fourth quarter 2013 and first quarter 2014 remain pending.

As a result, the company has not yet filed an annual report for its fourth quarter 2013 and the 10Q report for the first quarter of 2014. The company withdrew the previous guidance for fiscal 2014 and expects to provide the same once it completes the financial statements for the said quarters.

Also, management warned that owing to the pending response from OCA, some of the data in the fourth quarter press release issued Jan 30, 2014 should be treated as preliminary and is subject to change.

A number of law firms including Rosen Law Firm, P.A., Levi & Korsinsky, and Law Offices of Howard G. Smith have begun investigating potential claims against ITT Educational. The firms will inspect whether the company has violated any of the federal securities laws or has provided inaccurate statements regarding its true financial position.  

At the conference call, ITT Educational also announced that total enrollments for the first quarter declined 6.4% year over year. In addition, new enrollments witnessed a decrease of 3.8% due to unfavorable weather and lower number of prospective students in the quarter. New enrollment was down owing to a decline in enrollment in drafting and design (down 15.6%), electronics engineering (down 0.4%) and criminal justice (down 49.3%) programs.

During the quarter, student persistence rates declined 130 basis points (bps) to 70.2% due to a 7.4% dip in the number of continuing students. Student persistence rate is calculated by dividing the number of continuing students in any academic term by total student enrollment in the immediately preceding academic term.

Further, ITT Educational also warned that second quarter new student enrollments could decline year over year in the range of 10% to 15%.  

Most of the estimates for this Zacks Rank #4 (Sell) company moved downward in the past 30 days, following the guidance withdrawal. The Zacks Consensus Estimate for fiscal 2014 declined 15.8% to $2.61 per share while that for 2015 declined 30.4% to $2.24 per share over the same time frame.  

Other Stocks to Consider

Other better-ranked education companies that warrant investor attention include Lincoln Educational Services Corp. LINC, DeVry Education Group Inc. DV and Grand Canyon Education, Inc. LOPE. While Lincoln Educational sports a Zacks Rank #1 (Strong Buy), DeVry and Grand Canyon carry a Zacks Rank #2 (Buy).

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