ITT Educational Services, Inc. (ESI): Blum Capital Partners Reducing Exposure as the Stock Keeps Falling

Richard Blum’s Blum Capital Partners is reducing its activist stake in its second largest holding, ITT Educational Services, Inc. (NYSE:ESI). Blum Capital Partners’ recent filing with the Securities and Exchange Commission (SEC) shows that the fund decreased its stake to over 1.85 million shares or 7.9% of all outstanding shares of ITT Educational Services, Inc. (NYSE:ESI) from over 2 million shares it held earlier.

ITT Educational Services, Inc. (NYSE:ESI)

According to our records, Blum Capital Partners has held ITT Educational Services, Inc. (NYSE:ESI)’s shares for the last couple of years. However, it has been reducing its exposure in the company since the last several quarters. At the end of 2013, the fund held over 4.4 million shares. Another interesting thing to note over the past couple of quarters is that the fund has significantly reduced the number of public companies it has invested in, during the second quarter its equity portfolio has shrunk to only 5 positions.

Blum Capital Partners is a San Francisco-based fund, founded by Richard Blum in 1975. Before founding Blum Capital Partners, Richard Blum was employed at Sutro & Co. from 1958 to 1975. The fund majorly invests in small & mid-cap, public and private companies. As of June 30, 2014, the fund’s equity portfolio is valued at around $600 million. CBRE Group Inc (NYSE:CBG) is the largest equity holding of the fund and constitutes over 80% of the fund’s equity portfolio. For those who feel that one holding constituting 80% of a portfolio is against the rule of diversification, one needs to check the returns generated by CBRE Group Inc (NYSE:CBG). The company’s stock is up around 30% since last year and around 14% in the last six months.

ITT Educational Services, Inc. (NYSE:ESI) is a $244 million company that provides postsecondary degree programs in the United States. The stock of the company has fallen by more than 70%in last one year, which can be a possible reason why Blum Capital Partners is diluting stake in one of its longest held companies. The company currently trades at 0.24 times its trailing sales, while the average trailing P/S of the industry is 1.16.

Other hedge funds, who have a stake in ITT Educational Services, Inc. (NYSE:ESI) include Robert Joseph Caruso’s Select Equity Group and Philip Hempleman’s Ardsley Partners. During the end of second quarter, Select Equity Group held over 3.2 million shares and Ardsley Partners held 625,000 shares. Analysts have a consensus rating of ‘Hold’ on the stock, while the average price target is $11.50. On October 21, analysts at Zacks downgraded the stock to ‘Underperform’ from ‘Neutral’ while maintaining the price target at $9.60. On the same day, analysts at Wells Fargo & Co. reiterated their rating of ‘Outperform’ on the stock.

Disclosure: None