Career Education Corporation: The Time Is Now
Summary
- 2017 results were ahead of every management target, and 2018 will be much better.
- CECO just reported industry-leading enrollment figures and is positioned to convert revenue into profits at a much higher rate than peers.
- The company is using technology in innovative ways that set it apart and create a competitive advantage.
- The stock should double or more.
Career Education Corporation (NASDAQ:CECO) just reported results for the full-year 2017, and they were ahead of every management expectation – even the revised ones that indicated quarterly progress throughout 2017.
For those new to the story, Career Education went public in the late 1990s, and due to management foresight, favorable regulations, and a recession (higher education is generally counter-cyclical), the stock went up and up. On a split adjusted basis, it went from $3 to $70.
In the last recession starting in 2008/2009, the stock went from about $13 to $34 until the former administration’s regulatory dealings affected results.
Results like these are reflective of the incredible results a company like Career Ed. can turn in, even over a short period, given favorable circumstances and increasing student demand.
Career Education has wisely focused for years to close down its institutions that proved to be a headwind to shareholders. 2018 is the first year of the company’s essential rebirth. Its focus on student outcomes and differentiating technology is providing a platform that will likely bring substantial growth and profits.
Wall Street has been taking note, with the company having outperformed all peers on a multi-year basis.
The company just reported bumper new and total enrollment growth, its operations are stable, and its technology hard to easily replicate.
Despite this, others in the sector are still valued much higher. The combined STRA/CPLA franchise is currently valued at about $2 billion jointly. ATGE (Devry) is valued at $3 Billion.
Career Education’s online approach is resonating with students. Its model is much more easily scaled than its competitors which still maintain vast ground networks, the regulatory environment is favorable, and as I showed above, this is all happening at a time of cyclical weakness for the sector. History has shown that significant upside is possible come the next bump in the economy.
As the business sits today, it should generate earnings this year of $1.50 per share. If Career Education can make AIU perform more like CTU, its earnings would be closer to $2.50 per share. Should enrollment growth continue, or better, accelerate due to broad economic declines and/or market share gains, even better results are possible.
One other point. Other companies in the space are now paying 20-30% in taxes on operating earnings. Career Ed has $215 million in NOL carry-forwards to reduce taxes for the foreseeable future. A point I believe is lost to many investors and one that makes the shares all the cheaper than they already are.
Wise investors got on board years ago and have seen market-beating returns. But it is not too late. 2018 will prove to be an inflection year for the company’s results, and the best is yet to come.