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ITT Educational Services Inc. (ESI - Snapshot Report) shares plunged 20.54% and closed at $20.50 on May 22, following the release of its preliminary results for first quarter 2014 and the withdrawal of its previously provided guidance for the year.

ITT Educational has submitted an enquiry to the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission (SEC) related to the accounting treatment of the PEAK Private Student Loan Program in the company’s financial statements. However, the company is yet to receive any response from the authority and therefore finalization of its financial statements for fourth quarter 2013 and first quarter 2014 remains pending. Also owing to the pending response from OCA, some of the data in the press release are preliminary and are subject to change.

A number of law firms including Rosen Law Firm, P.A., Levi & Korsinsky, and Law Offices of Howard G. Smith have begun investigating potential claims against ITT Educational. The firms will inspect whether the company has violated any of the federal securities laws or has provided inaccurate statements regarding its true financial position.  

In addition, the company’s fourth quarter 2013 and first quarter 2014 results are yet to be audited. As a result, the company has not yet filed annual report for its fourth quarter 2013 and the 10Q report for the first quarter 2014. As such the company is withdrawing all the previous guidance for fiscal 2014. The company expects to provide guidance for 2014 once it completes the financial statements for the said quarters.

ITT Educational said total enrollments for the first quarter have declined 6.4% year over year. In addition, new enrollments witnessed a decrease of 3.8% due to unfavorable weather and lower number of prospective students in the quarter. New enrollment was down owing to a decline in enrollment in drafting and design (down 15.6%), electronics engineering (down 0.4%) and criminal justice (down 49.3%) programs.

During the quarter, student persistence rates declined 130 basis points (bps) to 70.2% due to a 7.4% dip in the number of continuing students. Student persistence rate is calculated by dividing the number of continuing students in any academic term by total student enrollment in the immediately preceding academic term.

The company expects new student enrollment in the second quarter of 2014 to decline year over year in the range of 10% to 15%.

ITT Educational currently carries a Zacks Rank #5 (Strong Sell).

Other better-ranked education companies that warrant investor attention include Lincoln Educational Services Corp. (LINC - Snapshot Report), DeVry Education Group Inc. (DV - Analyst Report) and Grand Canyon Education, Inc. (LOPE - Snapshot Report). Lincoln Educational sports a Zacks Rank #1 (Strong Buy) while DeVry and Grand Canyon carry a Zacks Rank #2 (Buy).

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