Career Education: Reversal To A 'Buy' On News Of European Sale

Oct.25.13 | About: Career Education (CECO)

Career Education's (NASDAQ:CECO) cash infusion is exactly what the doctor ordered, this buys time to complete a turnaround strategy effort, this stock could indeed be a 5-10 bagger as Joseph Swanlund predicted.

I have been consistently short CECO as the company has been burning through cash, struggling to cut costs, and losing earning potential through declining enrollments. CECO made several management mis-steps under previous leadership such as repurchasing stock at a price point almost 10 fold above the price a week ago, and mis-forecasting enrollment projections.

The previous CEO discussed the cash equivalents "burn rate" dismissively even as the company's EPS plunged into negative territory creating an alarming trend in income and assets, cash flow being top of mind.

CECO has a very diverse portfolio of business units and refocusing the company toward the profitable units will take time. Currently the closing of ground campuses (teachouts) are draining resources and entire business units of questionable value are still on the books.

While I am still not a fan of the Career side of the portfolio, this cash will allow the new management team valuable time to in their attempt to reverse the current losses. The University side, particularly Colorado Technical University, has remained profitable to date.

While this stock is not without risk from regulators and litigation, the risk from a cash flow crisis has been taken off the table for the short to medium term.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CECO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.