CECO Career Education Corporation
Sector financial performance:
This company that primarily provides postsecondary, degree-granting education and career-focused degree programs through online and on-campus has been grouped into private university –online sector in education industry.
It seems that demand for online or on-campus degree granting programs from non-traditional students – working students mainly has been weak in the past several years as indicated by decreasing enrollment for the companies in this sector(about 2-5% organic decrease annually ). Shrinking demand resulted in increase in intense in competition for students, which put huge pressure on admission. Companies have to spend more on promotion and marketing such as scholarship.
As enrollment/revenue decreases, companies’ profitability has been hurt. As a reaction to shrinking cash flow, companies have to keep raising tuition while decreasing enrollment, cutting expenses, and closing underperformance programs. It seems those measurement have been working to help improve companies’ profitability since 2017. However, for those that have to raise tuition, they may have to experience continuingly decrease in enrollment and thus revenue and have had to retire more unprofitable programs.
As a result of impacts described above, almost all of companies’ gross margins (include depreciation and amortization, rent, and exclude marketing expenses) went down between 2015 and 2017. Our data indicate those companies’ gross margins were between 42-68% (average 56%) with admission and marketing experience as percentage of sales of 27% (average) and G&A as percentage of sale of 12% (average) in 2017. The average operating margin among those companies is 7%. Since 2017, the average gross margin was improved to about 62% probably due to rising tuition and teach-out of schools. And. With help costs saving in SG&A, the operating margin up to about 8.5% in 2018.
According to our analysis, the current companies’ enterprise price/EBI ratio is between 24 and 33and enterprise price/sales is between 0.4-5.2.
It seems that the demand for this company’s online degree programs has been, in the past several years, driven primarily by financial incentives and marketing efforts as indicated by continuing increase in total enrollment in its ongoing operation while largely and continuously closing under performance campus. However, it seems the demand varies in different programs and, when raised tuition, the enrollment down again.
The first six months of fiscal 2018 compared with the same period of 2017
Revenue (exclude teach-outs) increased 1.4% (3.2% for 2Q) when total enrollment (as date) decreased by 2.8% (Exclude teach–outs).
The fiscal 2017 compared with the 2016
Revenue (exclude teach-outs) increased 1.3% when total enrollment (as date) increased by 3.3% (Exclude teach–outs).
The first nine months of fiscal 2017 compared with the same period of the 2016
Revenue (exclude teach-outs) stays no changes while total enrollment (as date) increased by 2.5%. (Exclude teach–outs).
Fiscal 2016 compared with 2015
Revenue (exclude teach-outs) increased by about 2.2% driven by increase of 5.3% in total enrollment (as date) (exclude teach–outs).
Fiscal 2015 compared with 2014
Revenue (exclude teach-outs) increased by about 2.7% driven by increase of 4.4% in total enrollment (as date) (exclude teach–outs).
Its gross margin (include depreciation and rentals but exclude admission expenses and marketing) went up from 59% to 68% in 2017 primarily due to decrease in faculty and student related costs as a result of teach-out of some programs offset by deleverage of expenses as a result of decreased revenue. During the same time, the SG&A as percentage of sales went up by about 300 basis points to 73% in 2017. Its operating margin actually got improved and thus went up to about -5% from about -11%. The gross margin continued to be improved as teach-out continued probably with raising tuition (about 77% in 2018). The operating margin went up largely to 8%. Therefore, while revenue continued to go down as closed campus, its cash flow has been improved.
This stock currently has an enterprise price/EBI ratio of 33($14.5). We think that its stock is being relatively overvalued considering that, while quality of its assets improved after teach-outs, it still has difficulty to justify its current high stock price.