Earnings Preview: ITT Educational

ITT Educational Services Inc. (ESI - Snapshot Report), one of the leading providers of technology-based post-secondary degree programs in the U.S., is scheduled to report its second-quarter 2011 financial results before the opening bell on July 21, 2011. The current Zacks Consensus Estimates for the quarter is earnings of $2.64 a share. For the quarter under review, revenue is expected at $378.0 million, according to the Zacks Consensus Estimate.

First-Quarter 2011, Summary

ITT Educational's first-quarter 2011 earnings of $2.91 per share outpaced the Zacks Consensus Estimate of $2.53, and surged 18.3% from $2.46 per share earned in the year-ago quarter.

ITT Educational registered a decline of 0.2% in revenue to gross $383.2 million compared with $384.0 million in the prior-year quarter. Moreover, total revenue also missed the Zacks Consensus Estimate of $384.0 million.

In the first quarter, the company witnessed a 0.6% decline in total enrollment to 84,030 students compared with 84,555 students in the prior-year period. The overall drop in enrollment was mainly attributable to a 5.6% decline in new enrollments to 21,761 students compared with 23,064 students in the prior-year period. Revenue per student inched down 4.8% to $4,525.

Guidance for Fiscal 2011

Management expects fiscal 2011 earnings to be in the range of $8.50 to $10.50 per share. Moreover, the company has planned to begin its operations in 8 to 10 new locations in fiscal 2011.

Second-Quarter 2011 Zacks Consensus

The analyst covered by Zacks expects ITT Educational to post second-quarter 2011 earnings of $2.64 a share, which is lower than earnings of $2.78 delivered in the prior-year quarter. The current Zacks Consensus Estimate ranges between earnings of $2.51 and $2.79 a share.

Zacks Agreement & Magnitude

Of the 16 analysts following the stock, none revised their estimates either upward or downward in the last 30 or 7 days, thereby keeping the Zacks Consensus Estimate unchanged.

Positive Earnings 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 1.0% to 15.0%. The average remained at approximately 5.9%. This suggests that ITT Educational has beaten the Zacks Consensus Estimate by an average of 5.9% in the trailing four quarters.

Our View

We believe that 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 government 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. However, ITT Educational is in view that the recent federal budget cut will not have any 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.

The company's nearest competitor Apollo Group Inc. (APOL - Analyst Report) 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.

Read the full analyst report on APOL

Read the full analyst report on ESI