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ITT Educational Services Inc. Stock Downgraded (ESI)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- ITT Educational Services (NYSE: ESI) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • ITT EDUCATIONAL SERVICES INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ITT EDUCATIONAL SERVICES INC reported lower earnings of $5.76 versus $11.11 in the prior year. For the next year, the market is expecting a contraction of 21.5% in earnings ($4.52 versus $5.76).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Consumer Services industry. The net income has significantly decreased by 112.5% when compared to the same quarter one year ago, falling from $76.05 million to -$9.47 million.
  • The debt-to-equity ratio of 1.10 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, ESI's quick ratio is somewhat strong at 1.06, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 74.90%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 114.28% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • Net operating cash flow has declined marginally to $86.59 million or 9.81% when compared to the same quarter last year. Despite a decrease in cash flow of 9.81%, ITT EDUCATIONAL SERVICES INC is still significantly exceeding the industry average of -64.70%.
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ITT Educational Services, Inc. provides postsecondary degree programs in the United States. The company has a P/E ratio of 1.6, below the S&P 500 P/E ratio of 17.7. ITT Educational Services has a market cap of $334 million and is part of the services sector and diversified services industry. Shares are down 17.3% year to date as of the close of trading on Friday.

You can view the full ITT Educational Services Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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