ESI Beats on Bottom Line - Analyst Blog
April 25 2011 - 8:00AM
Zacks
ITT Educational Services
Inc. (ESI), one of the leading providers of
technology-based post-secondary degree programs in the U.S.,
recently delivered first-quarter 2011 results that beat the Zacks'
expectation. The quarterly earnings of $2.91 per share outpaced the
Zacks Consensus Estimate of $2.53, and surged 18.3% from $2.46 per
share earned in the year-ago quarter.
ITT Educational registered a
decline of 0.2% in revenue to gross $383.2 million compared with
$384.0 million in the prior-year quarter. Moreover, total revenue
also missed the Zacks Consensus Estimate of $384.0 million.
In the first quarter, the company
witnessed a 0.6% decline in total enrollment to 84,030 students
compared with 84,555 students in the prior-year period. The overall
decline in enrollment was mainly attributable to a 5.6% decline in
new enrollments to 21,761 students compared with 23,064 students in
the prior-year period. Revenue per student inched down 4.8% to
$4,525.
ITT Educational reported a
year-over-year decline in number of probable students interested in
the company's study programs in the first quarter of 2011,
primarily due to a shift in the media mix. However, inquiries
transformed into application increased during the quarter.
The potential risk presently
looming over the education sector is the uncertainty over the Pell
Grant program. The U.S. Senate has passed a resolution to cut $38.5
billion from the federal budget in fiscal 2011. However, the Obama
government has maintained the maximum amount for Pell Grant at
$5,550 per student for 2011-12 academic year. However, the federal
budget cut may have an impact on the number of student getting Pell
Grant approval from the Department of Education.
However, ITT Educational is in view
that the recent federal budget cut will not have a significant
impact on the company's cash flows until 2013. But, whenever it
does, it will be in the range of $20.0 million to $30.0
million.
ITT Educational, which conducts
programs through its ITT Technical Institutes and Daniel Webster
Colleges, notified that the cost of educational services rose 2.6%
to $137.9 million. However, student services and administrative
expenses declined 2.2% to $104.6 million.
Consequently, ITT Educational's
operating income of $140.7 million, logged a decline of 1.4%.
Moreover, operating margin contracted 40 basis points to 36.7% in
the quarter.
ITT Educational ended the quarter
with cash and cash equivalents of $187.9 million, long-term debt of
$150.0 million, and shareholders' equity of $80.5 million. The
company generated $182.1 million of cash from operations, incurred
capital expenditure of $4.7 million and repurchased $139.7 million
worth of shares during the period.
Management expects fiscal 2011
earnings to be in the range of $8.50 to $10.50 per share. The
current Zacks Consensus Estimate of $9.50 lies within the company's
guidance range. Moreover, the company has planned to begin its
operations at 8 to 10 new locations in fiscal 2011. Currently, ITT
Educational operates through 130 campuses and 4 learning sites.
The company's nearest competitor
Apollo Group Inc. (APOL) recently reported its
second-quarter 2011 earnings per share of 83 cents, beating the
Zacks Consensus Estimate of 69 cents.
Currently, we have a long-term
'Neutral' rating on the stock. ITT Educational holds a Zacks #3
Rank, which translates into a short-term 'Hold' recommendation that
correlates with our long-term view.
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ITT EDUCATIONAL (ESI): Free Stock Analysis Report
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