UPDATE: Compass Point Downgrades ITT Educational Services to Sell Following 1Q Earnings
In a report published Friday, Compass Point analyst Michael Tarkan downgraded the rating on ITT Educational Services (NYSE: ESI) from Neutral to Sell, but reiterated the $12.00 price target.
In the report, Tarkan noted, “Although results came in ahead of our low expectations, we believe the optimism around a potential return to new start growth is misplaced. New starts may, in fact, begin to stabilize as the meaningful declines experienced over the past few years finally begin to provide easier comps and the company's scholarship activity is rolled out more broadly; however, persistence is declining, recruiting productivity in this industry has significantly deteriorated, and any meaningful return to consistent enrollment growth will come through at much lower price points, in our view. Furthermore, the company has limited capital flexibility, and intensifying competition and elevated regulatory risk remain concerns. As a result, we believe the stock has gotten ahead of itself and investors should take some chips off the table after yesterday's move. Our price target of $12 reflects 5x our 2014 EPS estimate of $2.50 and 7x our newly established 2015 estimate of $1.80.”
ITT Educational Services closed on Thursday at $20.00.
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