APOL Apollo Education Grp., Inc.

ITT Educational Services Inc. (ESI), one of the leading providers of technology-based post-secondary degree programs in the U.S., is scheduled to report its fourth-quarter 2011 financial results before the opening bell on January 26, 2012. The current Zacks Consensus Estimates for the quarter is earnings of $2.31 a share. Revenue is expected to be $358 million, according to the Zacks Consensus Estimate.

Third-Quarter 2011, a Synopsis

ITT Educational's third-quarter 2011 earnings of $2.48 per share outpaced the Zacks Consensus Estimate of $2.29, but declined 12.1% from $2.82 per share earned in the year-ago quarter. ITT Educational registered a decline of 10% in revenue to gross $360.6 million compared with $400.6 million in the prior-year quarter.

During the quarter, the company witnessed a 10% decline in total enrollment to 79,219 students compared with 88,004 students in the prior-year period. The overall drop in enrollment was mainly attributable to a 14.1% decline in new enrollments to 22,909 students compared with 26,664 students in the prior-year period. Revenue per student declined 3.2% to $4,580.

Guidance for Fiscal 2011

Management now expects fiscal 2011 earnings to be in the range of $10.40 to $10.60 per share, up from its previous guidance range of $10.00 to $10.50. ITT Educational also intends to begin its operations at 2 or more new locations during the rest of the current fiscal year.

Zacks Consensus

The analyst, covered by Zacks, expects ITT Educational to post fourth-quarter 2011 earnings of $2.31 a share, which is lower than earnings of $3.14 delivered in the prior-year quarter. The current Zacks Consensus Estimate ranges between earnings of $2.26 and $2.35 a share.

Agreement of Estimates

In the last 7 or 30 days, no movement in estimates has been noticed in either fourth-quarter 2011 or fiscal 2011.

Magnitude of Estimate Revisions

The magnitude of estimate revisions remain stagnant over the last 7 and 30 days, as analysts covering the stock have not revised their estimates for fourth-quarter 2011 and fiscal 2011.

Surprise History

With respect to earnings surprises, ITT Educational has topped the Zacks Consensus Estimate over the last four quarters in the range of approximately 1% to 15%. The average remained at approximately 8.1%, indicating that ITT Educational has beaten the Zacks Consensus Estimate by an average of 8.1% in the trailing four quarters.

Our View

Higher education sees a countercyclical movement during sluggish economic conditions. Post-secondary enrollments tend to rise as both unemployed and employed workers return to school to re-skill themselves and existing students remain in school for a longer duration compelled by the intensely competitive job market. So we believe that, the company may see improvements in new enrollments in near future.

However, 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 slash $38.5 billion from the federal budget in fiscal 2011.

The Obama administration has maintained the maximum amount for Pell Grant at $5,550 per student for 2011-12 academic year. The federal budget cut may have an impact on the number of student getting Pell Grant approval from the Department of Education.

Performance of Competitor

The company's nearest competitor Apollo Group Inc. (APOL) recently reported its first-quarter 2012 earnings per share of $1.28, declining 21.5% from the prior-period earnings of $1.63. However, earnings surpassed the Zacks Consensus Estimate of $1.18 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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