UPDATE: Morgan Stanley Reiterates on ITT Educational Services as CFPB Action Raises Concerns

In a report published Thursday, Morgan Stanley analyst Suzanne E. Stein reiterated an Equal-Weight rating on ITT Educational Services ESI, but removed the $28.00 price target. In the report, Morgan Stanley noted, “We believe the CFPB's findings raise the risk of an SEC enforcement case against the company which could potentially lead to restatements of historical financial results. The company is expected to consolidate PEAKS for F13 (as stated on its last earnings call) but is not expected to restate historical results. If the SEC alleges that ESI was active in the servicing and underwriting of PEAKS loans it could force a historical restatement. "We see this as a risk because assertions made by the CFPB do not agree with previous statements by ESI in publicly filed documents including its correspondence with the SEC (detailed on the following page). Findings in the lawsuit also raise the risk the Department of Education (ED) or the company's accreditors could take action. We note that a restatement of historical financials could have 90/10 implications, though there is no precedent to determine what action the ED would take retroactively.” ITT Educational Services closed on Wednesday at $32.40.