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Corinthian Colleges Faces Uphill Battle; Could Still Be Value Play

Corinthian Colleges Inc (COCO) is a post-secondary education company offering diploma programs, as well as bachelor’s and master’s degrees. In addition, the company provides training programs in healthcare, criminal justice, business, mechanical, trades, and information technology. Corinthian operates 97 schools within the United States and 14 schools within Canada. The number of students enrolled with the company is 81,284. Corinthian’s average daily volume is just under 1.1 million shares and the company has a market capitalization of $168 million.

Corinthian Colleges

Corinthian Colleges balance sheet

A quick glance at Corinthian Colleges Inc (COCO) reveals that, worryingly, the firm has a short-term liquidity problem. As far as I can see, according to the company’s most recent quarterly report, Corinthian had a quick and current ratio of 0.9. This indicates that the company cannot cover all of its liabilities falling due within 12 months with liquid assets. The majority of these current liabilities were accrued expenses, and although this does not get the company out of hot water completely, the current debt of $1.8 million was easily covered by $37 million of cash and short-term investments. Still, investors need to keep an eye on this situation. Indeed, it would appear that the company is regularly sailing close to danger as in three of the last five quarters, the company has reported a current ratio of less than one.

Having said all of that, the rest of Corinthian Colleges Inc (COCO)’s balance sheet appears relatively stable. In particular, debt-to-assets was only 9% at the end of the fiscal third quarter and debt-to-equity was 18%. All in all the company had a book value per share of $6.4 and at current prices Corinthian trades at a price-to-book ratio of 0.3.

Five year performance

Like its peer, Career Education Corp. (CECO), which is a favorite of mine, Corinthian Colleges Inc (COCO) has had a tough past few years. Thanks to a tough economic climate and a lower number of students, Corinthian has struggled to turn a decent profit during the past three years. For example, Corinthian’s last lucrative year was 2010 when the company reported a net income margin, excluding exceptional items, of 8.5%. This margin declined to 6.4% during 2011, before collapsing during fiscal 2012 to 0.3%, and then 0.1% during fiscal 2013. The company finally broke the 0% margin barrier during the third quarter of this year, fiscal Q1 2014 when it reported a loss excluding exception items of around $7 million, on revenues of $365 million.

Also see: The hedge fund manager that gave back fees

Corinthian Colleges outlook

To cope with the lower student population and the company’s contracting net margin, Corinthian Colleges Inc (COCO) has decided, like its peer Career, to sell off four of its campuses. The company has also rolled out several new diploma programs in an attempt to boost enrollment numbers. However, the Federal Government shutdown did affect the initial enrollment of some of these new courses.

Unfortunately, the company also reported at the same time it announced these results that enrollment had fallen 8.1% year-on-year during the third quarter, worse than the estimated fall on 6% to 8%.

Nonetheless, if Corinthian can get its house in order, reduce costs and return to profitability it could be a good value play. Still, with the rest of the education industry suffering from similar trends, Corinthian faces an uphill struggle.

-By Rupert H

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