Career Education Corp. (NASDAQ:CECO) is an education company with more than 57,000 students around the world enrolled in the company’s schools and universities. The company offers both online and traditional teaching courses with over 100 courses at 95 schools in 23 states and five countries. Career Education is a small cap stock with a market capitalization of $195 million and an average daily volume of 600,000.
Career has been thrown into a loss
Unfortunately, Career Education Corp. (NASDAQ:CECO) has been thrown into a loss during the past year as a lower number of students enrolled in its courses. In particular, back in June the company’s management revealed that year-on-year student numbers were down 25% and new student enrolls had declined a similar amount.
However, this is a factor somewhat outside of the company’s control as the number of college students throughout the U.S. declined as a whole last year.
However, despite the falling number of students, Career Education Corp. (NASDAQ:CECO) has not been able to cut costs to the same degree. Indeed, due to the nature of the education business, Career has high operational gearing and while tuition and registration fees have fallen 20% year-on-year at the end of the fiscal second quarter, operating expenses excluding impairment charges and depreciation have only fallen 7%. All in all, this resulted in the company reporting a net loss of $46.6 million for the quarter, or $67 million on a cash basis.
Nonetheless, Career’s management remains proactive and have identified the problems affecting the business, mainly a lower student population. However, parts of the company are still, on an individual basis, profitable. In particular, the American InterContinental University (“AIU”) and Brooks Institute; Colorado Technical University (“CTU”) reported positive profit margins for the fiscal second quarter and reported lower than average student population declines. Combined, AIU and CTU are Career’s only university schools and they reported an operating income of $17.6 million during the fiscal second quarter; an operating margin of 12%.
Career Education currently looks like a good investment
Still, while management is in the process of cutting costs and adjusting the company to cope with a lower student population, Career Education Corp. (NASDAQ:CECO) currently looks like a good investment based on its healthy balance sheet.
For a start, at the end of the fiscal second quarter the company reported a cash position of $230 million, $35 million more than its current market capitalization; the company had no debt during the period. What’s more, the company’s current assets covered total liabilities 1.1 times, leaving a shareholder equity of $570 million—I believe this indicates deep value. A net asset value per share of $8.50 per share reiterates the value currently on offer here.
Having said all of that, Career Education Corp. (NASDAQ:CECO) has taken a number of impairments and goodwill write-downs during the past few years, with $190 million of intangible assets still on the balance sheet I would not rule out further write-downs. Based on that, the company has a ‘tangible’ shareholder equity of $380 million, or $5.67 per share.