-As a Result, Analyst Downgrades Strayer Education, Inc., and Raises
Earnings-Per-Share Estimate on ITT Educational Services, Inc.-
MINNEAPOLIS, Oct. 2 /PRNewswire-FirstCall/ -- In his latest edition of the
Valuation Conundrum, released today, U.S. Bancorp Piper Jaffray Senior
Learning Services Analyst Mark Marostica provides insight into what he
believes are the drivers of the valuation differences among public post-
secondary education companies.
Marostica's proprietary attribute analysis and scoring methodology, the
cornerstone of his study, assigns numerical composite scores to companies
based on results from 29 attributes in seven categories, which include:
program quality, student quality, revenue visibility, enrollment
characteristics, regulatory risk, campus-related characteristics and financial
quality. Companies with higher composite scores are considered more favorable
than those with lower scores. Marostica then compared the composite scores
with each company's price-to-earnings (P/E) ratio.
Through his analysis, Marostica concluded there is a meaningful
correlation between a post-secondary education company's composite attribute
score and its P/E ratio. "Put simply, we have found that companies with higher
composite attribute scores generally trade at higher P/E ratios," said
Marostica. "We believe investors should be willing to pay more for a company
with a higher composite attribute score. In addition, we believe our analysis
will help investors identify and explain 'valuation disconnects' -- instances
in which a company's composite attribute score is not aligned with its P/E
In this third edition of the Valuation Conundrum, Marostica's attribute
analysis resulted in the following post-secondary education company ranking:
Rank Company Name
1 Apollo Group, Inc. (APOL, Strong Buy, $68.17, #>)
2 Strayer Education, Inc. (STRA, Market Perform, $98.79, #>)
3 Career Education Corporation (CECO, Strong Buy, $47.72, #>=)
4 Corinthian Colleges, Inc. (COCO, Strong Buy, $59.26, #>=)
5 ITT Educational Services, Inc. (ESI, Outperform, $49.20, #>=)
6 Education Management Corporation (EDMC, Outperform, $60.65, #>=)
7 Sylvan Learning Systems, Inc. (SYLV, Outperform, $28.51, #>=)
8 DeVry Inc. (DV, Underperform, $23.16, #>)
As a result of his analysis, however, Marostica is downgrading Strayer
Education to Market Perform from Outperform. "We believe STRA shares have been
'bid up' over the last several weeks due to the STRA's limited float (10.7
million shares), coupled with Strayer's relatively high perceived investment
quality as captured by our attribute analysis," said Marostica. "While Strayer
had the second highest composite attribute score in our analysis (second only
to Apollo) our valuation analysis flagged Strayer as an outlier given STRA's
relatively high calendar 2004 estimated P/E (39.6 times)."
In addition, Marostica is raising his fiscal 2004 earnings-per-share
estimate on ITT Educational Services by $0.03 from $1.48 to $1.51. "Although
ITT appears to be an 'overvalued' outlier in our analysis given its relatively
high P/E compared to its attribute score, we remain confident in the company's
operating margin expansion initiatives, including its 2+1 hybrid program, its
pure online program and new program rollout activity," said Marostica.
To receive a copy of Marostica's latest edition of the Valuation
Conundrum, clients and members of the media should contact Dana Wade at
email@example.com or 415-277-1556.
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