ITT Tech Shuts Its Doors Amid Investigation

Higher education institution closes over allegations, government sanctions

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Sep 06, 2016
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ITT Technical Institute, a subsidiary of ITT Educational Services Inc. (ESI, Financial), closed its doors Tuesday after the government banned the institution from enrolling new students receiving federal aid in August.

The closure follows accusations by the Institute’s accreditor of mismanagement of its finances and using questionable recruiting tactics. ITT Educational Services is also under investigation by state and federal authorities. After sanctions were implemented by the government, the institution released a statement indicating the chances of staying open were bleak as the institution was not only restricted from receiving federal aid for tuition but also required to increase cash reserves from $94.4 million to $247.3 million.

The Obama administration and the U.S. Department of Education have been cracking down on the for-profit college industry, accusing it of using deceptive marketing to enroll students who go into debt for low-quality educations. In addition, the Department of Education said ITT Tech received an estimated $580 million in federal money, or taxpayer dollars, last year.

ITT Educational Services, via ITT Technical Institute, offers associate, bachelor's and master's degree programs in information technology, electronics technology, drafting and design, business, criminal justice and nursing. The company runs more than 130 campuses in 38 states.

ITT Educational has a market cap of $8.4 million with an enterprise value of $109.9 million. It has a price-earnings (P/E) ratio of 0.42 with a forward P/E of 0.42. Its price-book (P/B) ratio is 0.05, and its price-sales (P/S) ratio is 0.01.

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GuruFocus ranked ITT’s financial strength 6 of 10. Its Piotroski F-Score is 4, indicating a stable financial condition. Its Altman Z-Score is 3.9, placing it in the safe zone. Its cash-debt ratio is 0.4, below the industry median of 3.2.

GuruFocus ranked the company’s profitability and growth 5 of 10. Its operating margin is 8.7%, and its net margin is 2.6%. It has a return on equity (ROE) of 12.9% and a return on assets (ROA) of 3.1%, ranking it above 65% and 50% of other companies in its industry.

Jim Simons (Trades, Portfolio) and Charles Brandes (Trades, Portfolio) are among the gurus invested in the company.

As of this spring, ITT was the fifth-largest for-profit college chain by revenue in the nation. About 43,000 students nationwide were enrolled at ITT Tech. Approximately 8,000 employees will be affected by the school’s closure.

Current and former students are not being left without alternatives, however. The Department of Education has provided resources in a blog post to help answer questions and offer guidance.

In a press release, ITT stated its “focus and priority with [its] remaining staff is on helping the tens of thousands of unexpectedly displaced students with their records and future educational options.”

Shares in ITT Educational Services have fallen 83% in the past month.

Disclosure: I do not own stock in any companies mentioned in the article.

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