I recently flagged Career Education Corp. (NASDAQ:CECO) as a ‘deep value’ stock that was trading below the value of its cash balance. However, Career made a huge announcement after the close on Thursday that has completely changed the company’s outlook. Furthermore, based on the figures coming out of this deal, Career Education Corp. (NASDAQ:CECO) appears to be worth much more than I originally predicted.
Career deal to sell its European education properties
The company revealed on Thursday that it had inked a deal to sell its European education properties to private equity firm, Apax Partners. Career Education Corp. (NASDAQ:CECO) expects the total consideration for the deal to be $305 million, less certain distributions and adjustments prior to closing of the deal. All in all, Career Education anticipates receiving a cash payment of $276.5 million at closing. Before the announcement, Career had a market capitalization of just under $250 million. As I write the stock is up 60%, valuing the company at $410 million.
This sale includes Career Education Corp. (NASDAQ:CECO)’s entire international schools segment, which accounted for about 9% of the company’s consolidated revenues during 2012. With revenue of $126 million from the international segment during 2012, this deal indicates that buyers are willing to pay 2.4 times revenue for Career’s education assets. That said, these international operations are some of Career’s most lucrative assets as they reported an operating margin of 13% during the first half of the year.
Career operated 90 campuses around the world
Still, the value of this deal suggests that even after Friday’s gain of around 60%, the company is still undervalued. Indeed, at the end of the fiscal second quarter, Career Education Corp. (NASDAQ:CECO) reported that it had $240 million in cash on its balance sheet and total current assets amounted to $458 million. In total, the company had $994 million in assets of which, $246 million was property related, $132 million was acquired goodwill and $57 million intangibles.
Career’s Europe business is comprised of the INSEEC group, with campuses in Paris, London, Bordeaux, Lyon and Monaco and well and the International University of Monaco. All in all, this indicates that Career sold 7 campuses for a consideration of $44 million each, which is more than the entire value of property on the company’s books. In addition, at the end of the company’s fiscal second quarter Career operated 90 campuses around the world, which including purchased goodwill and intangibles were booked at $435 million on the balance sheet, or only $4.8 million per campus.
Career Education’s property portfolio
What’s more, if you value Career Education Corp. (NASDAQ:CECO)’s property portfolio based on the 2.4 times revenue figure, as was used in this deal, the entire portfolio of 83 remaining campuses could be worth in the region of $3.2 billion – although considering the majority of the company’s US campuses are still operating at a loss, it would be prudent to assume that a figure much lower than this would be realized. Still, with a market capitalization of only $410 million as I write, it is easy to see how undervalued Career is.
Lastly, based on company reports Career Education Corp. (NASDAQ:CECO) had $166 million in cash on its books at the end of June this year. After the deal this cash balance will be in the region of $440 million, or approximately $6.63 per share.