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Career Education Corp Valuation Analysis: Update

One of my favorite value-turnaround plays, Career Education Corp. (CECO) recently reported full-year and fourth quarter 2013 results that beat Wall Street expectations. However, aside from beating Street expectations, these results showed that Career’s management is making solid progress in bringing the company back to health, underlining the company’s recovery potential.

Career Education

I first picked up Career Education Corp. (CECO)’s turnaround story in October of last year, when the company’s shares were trading at around $3.10. Since then, Career has announced a game changing deal to sell its European operations for what was at the time, more than the entire market capitalization of the company. This deal has been followed by this impressive looking set of fourth quarter results and improving outlook. All in all, since my initial recommendation back in October, the stock has surged 137% to $7.35, although this is just below the 52-week high of $7.81.

Career Education’s impressive results

For the fiscal fourth quarter of 2013, Career Education Corp. (CECO) reported revenues of $247.1 million and a net loss of $30.6 million, or -$0.46 per diluted share, a significant improvement on 2012′s fourth quarter result; a net loss of $61.5 million, or -$0.93 per diluted share on revenues of $303.3 million. For the full year 2013, the company reported total revenue of $1.06 billion, a net loss of $164.3 million, or -$2.46 per diluted share. Unfortunately, this was worse than the net loss of $142.8 million, or -$2.15 per diluted share, reported for the full year 2012 on revenue of $1.34 billion.

Nevertheless, the company is making important progress in other areas. For example, operating costs continue to decline dropping by $59.0 million in the fourth quarter and by more than $200.0 million for the full year. Additionally, net cash used in operating activities was only $8.0 million during the fourth quarter, versus $10.9 million in the third quarter and $52.8 million in the second quarter — so the company’s cash burn has slowed, giving it more time to restructure and return to profit.

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