ITT Educational Services, Inc. (ESI): Who’s A Buy Now?

ITT Educational Services, Inc. (NYSE:ESI)’s  stock was battered in 2012. After starting the year trading at $59.82, ITT Educational Services, Inc. (NYSE:ESI)s stock finished 2012 trading at only $19.29, a 67.8% decline. The company provides master, bachelor, associate and career-oriented education programs in various fields. This year, the stock has started showing signs of life again. It is currently up 20% year-to-date. The recent positive surprise in the company’s quarterly earnings report helped to lift ITT Educational Services, Inc. (NYSE:ESI)’s stock as the company beat analyst estimates by 11.9%. Will the momentum continue?

In its earnings call, ITT spoke about the main problem facing educational companies. Uncertainty surrounding the value of additional education has recently increased, with prospective students lacking confidence and putting off the decision to pursue additional education. For ITT, this trend has led to a 3.6% decrease in new student enrollment in the first quarter of 2013 as compared to the same period in 2012. Fellow companies report the same trend. Apollo Group Inc (NASDAQ:APOL) reported an 11.5% decrease in net revenue, principally due to lower enrollment. Corinthian Colleges Inc (NASDAQ:COCO) also recently reported that new student enrollment was down 5.7%, while DeVry Inc. (NYSE:DV) stated that new student enrollment declined 6.4%.

Examining the trends

Why does this happen? Education is expensive. Finding a new job is tough. Students fear that after spending money and time on education that they would not be able to cover the expenses. ITT Educational Services, Inc. (NYSE:ESI) has stated that the average annual salary reported by their 2012 graduates increased 2.5% to $32,609, as compared to the $31,820 average reported in 2011. To help combat uncertainty, ITT has started an opportunity scholarship program to help reduce the cost of education at its schools. The average debt balance for the entire duration of the study would be approximately $20,000 for an associate degree program, which is still a significant sum of money but it is 37.5% lower than the price of the same program before the scholarships began.

There is also rising competition from free online education startups such as Coursera and Udacity. These programs give students the opportunity to take different courses without having to pay for them. Coursera is also working with some universities to provide university credits for a payment. This means that if a person wants knowledge in a subject and is not interested in receiving an actual degree, they can choose the course they want and learn for free. The whole model is very fresh, and it is difficult to predict the impact that it will have on the education world. It is surely an option to consider for students that are on a tight budget.