ITT Educational Services (ESI) Stock Falls Apart on DOE News

ITT Educational Services, Inc. (NYSE: ESI)

ITT Educational Services is having an incredibly rough day in the market today, and for good reason. A figurative bomb was dropped on the company by the United States Department of Education. Today, we’ll talk about the news, how the stock reacted, and what we can expect to see from ESI ahead. So, let’s get right to it…

Department of Education Breaks ESI Apart

As mentioned above, ITT Educational Services is having an horrible day in the market today after news came out of the Department of Education. Unfortunately, the US DOE said that it has made the decision to stop enrolling students into the school with federal loans.

At the end of the day, the Department of Education found that the operation at ESI didn’t fit the standards for a college education. As with many other for-profit colleges, the operation wasn’t very positive to say the least. Finances, advertising, job placement and graduation rates didn’t quite meet expectations. As a result, students who borrowed federal money in order to pay for an ITT Tech degree defaulted on the loans as their degree didn’t give them much of an edge up in the job market. In a statement with regard to the news, John King, Secretary of Education, had the following to offer…

Our responsibility is first and foremost to protect students and taxpayers. Looking at all of the risk factors, it’s clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds.”

How The Market Reacted To The News

As investors, one of the first things that we learn is that it’s important to watch the news. Any time positive news is released with regard to a publicly traded company, we can expect to see gains in the stock that’s representative of the company. However, the news that was released with regard to ESI today was anything but positive. After all, a large percentage of the students that attend the school do so using federal money. To make matters worse, the reason that federal loans will no longer be approved for ITT Educational Services leads to concerns among students, parents, and investors.

The news today is a massive blow to ITT’s ability to move forward. Think about it, students that call in are going to be told that federal funding is unavailable. Of course, these students are going to look into why. When they find out that there’s no real advantage in the job market, they’re not going to want to go to that school. So, not only is the ESI going to see declines in revenue due to no federal funding, but they are going to have a hard time getting sales to recover thanks to the image this leaves behind.

With all of that said, the stock is currently (3:00) trading at $0.52 per share after a loss of $0.88 per share or 62.86% thus far today.

What We Can Expect To See Moving Forward

Moving forward, I couldn’t have a more bearish opinion with regard to what we can expect to see from ITT Educational Services. At the end of the day, the news that was released today shows that the company built a business on sub-par education. Essentially, the company is charging students for an education that means nothing in the workplace. I’d be surprised if the company even exists 10 years from now.

What Do You Think?

Where do you think ESI is headed moving forward? Join the discussion in the comments below!