ESI Beats, Raises Lower-End Outlook - Analyst Blog
July 22 2011 - 12:41PM
Zacks
ITT Educational Services Inc. (ESI), one of the
leading providers of technology-based post-secondary degree
programs in the U.S., recently delivered second-quarter 2011
results that beat the Zacks' expectation.
The quarterly earnings of $2.85 per share outpaced the Zacks
Consensus Estimate of $2.64, and rose 2.5% from $2.78 per share
earned in the year-ago quarter.
ITT Educational registered a decline of 3.5% in revenue to
$387.9 million compared with $401.8 million in the prior-year
quarter. However, total revenue beats the Zacks Consensus Estimate
of $378.0 million.
In the second quarter, the company witnessed a 7% decline in
total enrollment to 78,743 students compared with 84,695 students
in the prior-year period. The overall decline in enrollment was
mainly attributable to a 19.9% drop in new enrollments to 17,351
students compared with 21,673 students in the prior-year period.
Revenue per student inched down 2.9% to $4,616.
ITT Educational reported a year-over-year decline in the number
of probable students interested in the company's study programs in
the second 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 administration has maintained the maximum
amount for Pell Grants at $5,550 per student for 2011-12 academic
year. That said, 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 in its first-quarter 2011 earnings call
conference has revealed 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 6.4% to $142.3 million, and
student services and administrative expenses inched up 4.2% to
$115.6 million.
Consequently, ITT Educational's operating income of $130.0
million, logged a decline of 17.3%. Moreover, operating margin
contracted 560 basis points to 33.5% in the quarter.
ITT Educational ended the quarter with cash and cash equivalents
of $158.2 million, long-term debt of $150.0 million, and
shareholders' equity of $86.5 million. The company generated $60.6
million of cash from operations, incurred capital expenditure of
$7.5 million and repurchased $79.4 million worth of shares during
the period.
Management now expects fiscal 2011 earnings to be in the range
of $10.00 to $10.50 per share compared with $8.50 to $10.50
forecasted earlier. The current Zacks Consensus Estimate of $10.21
lies within the company's guidance range.
Moreover, the company has planned to begin its operations at 7
to 9 new locations during the remainder of current fiscal year.
Currently, ITT Educational operates through 131 campuses and 4
learning sites.
The company's nearest competitor Apollo Group
Inc. (APOL) recently reported its third-quarter 2011
earnings per share of $1.45, declining 16.7% from the prior-period
earnings of $1.74. However, earnings surpassed the Zacks Consensus
Estimate of $1.34 a share.
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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