Quick Analysis: Career Education Corp (CECO)

CECO: Career Education Corp

For Profit Education Company

Recent Range: $13/share – $35/share (Current Price: 29.47, as of close of 5/4/10)

Price/Sales (P/S) = 1.34 (3.49, Industry)
Price/Book (P/B) = 2.74 (8.06)
Gross Margin = 65.3% (56.8%)
Pre-Tax Margin = 12.2% (15.3%)
Debt/Equity Ratio = 0.00 (0.22)
Current Ratio = 1.4 (1.9)
Return on Equity = 15.6% (47.2%)
Return on Assets = 9.8% (19.9%)

Analysis: Confused…There are a lot of mixed messages here.

This stock does not produce any dividends, but most of the companies within this industry do not. The ones that do pay poorly (under 1%).

The industry could be facing a boom period or a really tough one. Many people are going to school, and there is a lot of government money available for higher education. On the other hand, minority political leaders are openly questioning the job rate increase resulting from the education compared to the cost to obtain it. So there is a possibility that the government will meddle with for-profit education in the name of reform. Depending upon the steps they might take, it could just be a slap on the wrist, or it could be more debilitating.

The company has a little bit less cash than others in this industry, but they have been aggressively buying other schools, which could provide nice returns in the future. For now, they have enough cash to pay their bills, you just would like to see that cash pile sit a little higher.

The fundamentals indicate that this stock is inexpensive relative to its competitors. However, today’s price is high within its somewhat recent historical price range.

The return on investment is poor. The gross margin is wonderful, but there is a big drop to the pre-tax margin. Since this is a service driven industry and they have no debt, it seems like they are not controlling their overhead very well.

This stock could go quite a bit higher. There are a lot of things about this company to appreciate, but it is not what I would call a definite buy. It’s not a definite sell, either.

With this company, I’ll be watching the government’s education “reform” and see whether they cut their overhead. Watch closely; it could be good. We just don’t have enough info today to be certain.