UPDATE: Compass Point Upgrades ITT Educational Services to Neutral, Raises PT Following Strong 3Q13 Earnings

In a report published Friday, Compass Point analyst Michael Tarkan upgraded the rating on ITT Educational Services ESI from Sell to Neutral, and raised the price target from $15.00 to $35.00. In the report, Compass Point noted, “We are raising ESI to Neutral, from Sell, and increasing our price target to $35, from $15, following better-than-expected 3Q13 earnings and a recent re-rating of peer group multiples. Two consecutive quarters of positive start growth and better expense control drive our more favorable outlook and momentum should limit near-term downside on the stock. However, we remain relatively cautious and continue to expect meaningful operational and regulatory risks remain in play long term. While the new start improvement may continue as comps remain depressed, we expect revenue per student will be an overhang well beyond 2014 as pricing pressure continues to mount. We also expect additional private student loan charges to materialize and from a regulatory perspective, the outstanding CFPB and SEC investigations remain serious concerns. At 15-16x our 2014 EPS estimate and 4-5x EV/EBITDA, though, we believe shares better reflect current risk/reward.” ITT Educational Services closed on Thursday at $39.18.