Clouds Are Parting At Career Education (CECO)

Exactly one month ago, I wrote a post on the Education Stocks where I had highlighted the attractive valuations that existed, as well as the interest of private equity capital in this sector. Career Education Corp. (CECO) has provided some good news and decent returns since that time.

Let's review what has gone right and what concerns remain.

On Wednesday, CECO announced that the MidWest office of the SEC was no longer seeking enforcement action (for the 10-K's of 2003 and 2004) and that this office was recommending the termination of further investigations. One of the class-action lawsuits was dismissed by a U.S. District Court last week, though it may resurface again. Other class-action suits remain.

Finally, in a California case specific to CECO's Brooks Institute business, a judge ruled that a CA regulatory agency had improperly sanctioned the division with a "Conditional Approval to Operate."

What remains on the regulatory front? The most serious problem for CECO appears to be the probationary status of AIU, American Intercontinental University, which is operating on a probationary basis, a situation that threatens its accreditation (by the Southern Association of Colleges and Schools,) and has obviously impacted enrollment negatively.

Management appears to be addressing the specific concerns by adding administrative staff, qualified admissions staff as well as full time faculty. The school's accreditation will be reviewed again in December according to an excellent William Blair brokerage report (authored by analysts Litfin, Steinke, and McHugh) dated Wednesday where the firm upgraded the stock to "market perform."

The Department of Education has refused to approve CECO applications for adding new locations or making acquisitions until it completes its review; this remains an overhang on the stock. There also remains a Department of Justice investigation as well as an investigation by the Pennsylvania Attorney-General.

Again, it is important to remind ourselves that these sorts of investigations are endemic to this industry. Enrollment and recruitment of students, packaging of financial aid, and procedures to deal with student complaints have previously resulted in examinations of ITT Educational (ESI) as well as Apollo Group (APOL).

The legal and regulatory clouds seem to be dispersing at least partially and CECO's valuation, in my opinion, still incorporates a great deal of doubt. EV/EBIT remains below 10 times, a significant discount to APOL at 11.8 times, or ESI at 14.2 times.

CECO 1-yr Chart

Disclaimer: Several clients are currently long CECO. Neither I, nor my family, or clients have a position in ESI or APOL.

Comments

[CEC Truth A...:]

I wouldn't exactly say the clouds are parting...


CEC is closing and selling many of it's schools

CEC students and faculty are going through the CEC networks trying to get the word out. Get out of a CEC school immediatly and meet with your president and ask for a refund.

If you havn't started, get a refund and never talk to another car salesman enrollment representative again.

And if you have graduated you should contact your president and ask them what is going on. Why wasn't I told this information before I attended.

You do not want a school on your resume from an institution that doesn't exist. Just ask the hundreds of past students in the groups below.

CEC is closing schools and selling schools and this is exactly why they have no credibility in the career or educational world.

CEC chef school reports: What CEC won't show you
~www.sfweekly.com/2007-.../
~groups.myspace.com/ind...

Selling information:
~chronicle.com/news/art...

~en.wikipedia.org/wiki/...

This is why I dropped out along with many others:
www.secinfo.com/dRSm6....

This group explains everything:

Myspace: groups.myspace.com/The...

facebook: academy.facebook.com/g...

(CEC officials won't tell you this)

2008 Jan 08 06:47 PM

[User 138434:]

NEW INFORMATION:

Career Education's chief executive officer recently said that some schools could be shut down -- something known in the business as a ''teach-out.''

''Unfortunately, despite our best efforts, we could not find a suitable arrangement,'' CEO Gary E. McCullough told financial analysts during a conference call in November. ''We'll be considering alternatives including the continued operation of certain schools, conversion of one or more of our core brands, teach-outs, or the eventual sale of individual schools.''

www.mcall.com/business...


CEC is out for the count!

2008 Feb 10 11:34 AM

[User 138434:]

This group shows what CEC does to students; wrecks their future and credit with no chance of ever fidning a decent job.

academy.facebook.com/g...

2008 Feb 10 11:35 AM

[User 138434:]

This group also shows what CEC does to students lives.

Myspace: groups.myspace.com/The...


CEC is a bamboozling corporation and The Feds have noticed cutting off funding. This corporation has seen it's last days.

Karma is a B%$&#!!!

Catch that falling knife Gary McCullough...

2008 Feb 10 11:38 AM

[User 138434:]

IADT is a scam and Gary McCullough CEO of CEC which runs IADT hasn't even broken the news to the students about all this. These school are about to fall fast without Federal funding and the studenst should be made aware of it.

www.mcall.com/business..., 0, 4766838.story

2008 Feb 12 03:28 AM