Intrinsic value of Career Education - CECO

Previous Close

$18.59

  Intrinsic Value

$0.73

stock screener

  Rating & Target

str. sell

-96%

Previous close

$18.59

 
Intrinsic value

$0.73

 
Up/down potential

-96%

 
Rating

str. sell

We calculate the intrinsic value of CECO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -16.88
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  704
  608
  622
  638
  656
  676
  698
  721
  747
  775
  804
  836
  870
  906
  945
  985
  1,029
  1,074
  1,123
  1,174
  1,228
  1,285
  1,345
  1,408
  1,475
  1,545
  1,619
  1,696
  1,778
  1,864
  1,955
Variable operating expenses, $m
 
  636
  650
  667
  685
  706
  728
  752
  779
  807
  838
  861
  896
  934
  973
  1,015
  1,060
  1,107
  1,156
  1,209
  1,265
  1,323
  1,385
  1,450
  1,519
  1,591
  1,667
  1,747
  1,832
  1,921
  2,014
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  737
  636
  650
  667
  685
  706
  728
  752
  779
  807
  838
  861
  896
  934
  973
  1,015
  1,060
  1,107
  1,156
  1,209
  1,265
  1,323
  1,385
  1,450
  1,519
  1,591
  1,667
  1,747
  1,832
  1,921
  2,014
Operating income, $m
  -32
  -28
  -28
  -29
  -29
  -30
  -30
  -31
  -32
  -33
  -34
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
EBITDA, $m
  -9
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  -31
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -36
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -62
  -65
  -68
  -72
  -76
Tax expense, $m
  -16
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -19
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -36
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -62
  -65
  -68
  -72
  -76

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  197
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  560
  387
  396
  406
  417
  430
  444
  459
  475
  493
  512
  532
  554
  577
  601
  627
  655
  684
  715
  747
  781
  818
  856
  896
  939
  983
  1,030
  1,080
  1,132
  1,187
  1,244
Adjusted assets (=assets-cash), $m
  363
  387
  396
  406
  417
  430
  444
  459
  475
  493
  512
  532
  554
  577
  601
  627
  655
  684
  715
  747
  781
  818
  856
  896
  939
  983
  1,030
  1,080
  1,132
  1,187
  1,244
Revenue / Adjusted assets
  1.939
  1.571
  1.571
  1.571
  1.573
  1.572
  1.572
  1.571
  1.573
  1.572
  1.570
  1.571
  1.570
  1.570
  1.572
  1.571
  1.571
  1.570
  1.571
  1.572
  1.572
  1.571
  1.571
  1.571
  1.571
  1.572
  1.572
  1.570
  1.571
  1.570
  1.572
Average production assets, $m
  59
  135
  138
  142
  146
  150
  155
  160
  166
  172
  179
  186
  193
  201
  210
  219
  228
  239
  249
  261
  273
  285
  299
  313
  327
  343
  359
  377
  395
  414
  434
Working capital, $m
  79
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
Total debt, $m
  0
  3
  6
  10
  15
  20
  25
  31
  38
  45
  52
  60
  69
  78
  88
  98
  109
  120
  133
  146
  159
  174
  189
  205
  222
  239
  258
  278
  298
  320
  343
Total liabilities, $m
  238
  154
  157
  161
  166
  171
  176
  182
  189
  196
  203
  211
  220
  229
  239
  249
  260
  271
  284
  297
  310
  325
  340
  356
  373
  390
  409
  429
  449
  471
  494
Total equity, $m
  322
  233
  239
  245
  252
  259
  268
  277
  287
  297
  309
  321
  334
  348
  363
  378
  395
  412
  431
  451
  471
  493
  516
  540
  566
  593
  621
  651
  683
  716
  750
Total liabilities and equity, $m
  560
  387
  396
  406
  418
  430
  444
  459
  476
  493
  512
  532
  554
  577
  602
  627
  655
  683
  715
  748
  781
  818
  856
  896
  939
  983
  1,030
  1,080
  1,132
  1,187
  1,244
Debt-to-equity ratio
  0.000
  0.010
  0.030
  0.040
  0.060
  0.080
  0.090
  0.110
  0.130
  0.150
  0.170
  0.190
  0.210
  0.220
  0.240
  0.260
  0.280
  0.290
  0.310
  0.320
  0.340
  0.350
  0.370
  0.380
  0.390
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
Adjusted equity ratio
  0.344
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -19
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -36
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -62
  -65
  -68
  -72
  -76
Depreciation, amort., depletion, $m
  23
  23
  23
  24
  24
  25
  25
  26
  26
  27
  27
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
Funds from operations, $m
  -10
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
Change in working capital, $m
  -16
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  6
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
Maintenance CAPEX, $m
  0
  -13
  -13
  -14
  -14
  -15
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
New CAPEX, $m
  -4
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -34
  -16
  -16
  -18
  -18
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -27
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -50
  -53
  -56
  -58
  -61
Free cash flow, $m
  -28
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -75
  -80
  -84
  -88
  -93
Issuance/(repayment) of debt, $m
  -38
  3
  4
  4
  5
  5
  6
  6
  6
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
Issuance/(repurchase) of shares, $m
  1
  33
  34
  35
  37
  38
  40
  42
  44
  45
  48
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  111
Cash from financing (excl. dividends), $m  
  11
  36
  38
  39
  42
  43
  46
  48
  50
  52
  56
  48
  51
  54
  57
  60
  64
  68
  71
  75
  79
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
Total cash flow (excl. dividends), $m
  -17
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
Retained Cash Flow (-), $m
  16
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -45
  -48
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -95
  -100
  -105
  -111
Prev. year cash balance distribution, $m
 
  67
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
Cash available for distribution, $m
 
  50
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  48
  -16
  -16
  -16
  -15
  -15
  -15
  -14
  -14
  -13
  -12
  -12
  -11
  -10
  -9
  -8
  -8
  -7
  -6
  -5
  -5
  -4
  -3
  -3
  -2
  -2
  -1
  -1
  -1
  -1
Current shareholders' claim on cash, %
  100
  96.8
  93.7
  90.6
  87.6
  84.6
  81.7
  78.9
  76.1
  73.4
  70.8
  68.8
  66.7
  64.7
  62.8
  60.8
  58.9
  57.1
  55.2
  53.5
  51.7
  50.0
  48.4
  46.8
  45.2
  43.7
  42.2
  40.8
  39.4
  38.0
  36.7

Career Education Corporation, through its colleges, institutions and universities, offers education to students in a range of career-oriented disciplines through online, on-ground and hybrid learning programs. The Company's American InterContinental University (AIU) and Colorado Technical University (CTU) provide degree programs through the master's or doctoral level as well as associate and bachelor's levels. The Company operates through four segments: CTU, AIU, Culinary Arts and Transitional Group. Its University group consists of AIU and CTU, which serve students online with career-focused degree programs. Its Career Colleges Group consists of Culinary Arts and Transitional Group segments. The Culinary Arts segment includes Le Cordon Bleu institutions in North America (LCB), which offer hands-on educational programs in the career-oriented disciplines of culinary arts and patisserie and baking in the commercial-grade kitchens of Le Cordon Bleu.

FINANCIAL RATIOS  of  Career Education (CECO)

Valuation Ratios
P/E Ratio -67
Price to Sales 1.8
Price to Book 4
Price to Tangible Book
Price to Cash Flow 212.3
Price to Free Cash Flow 636.9
Growth Rates
Sales Growth Rate -16.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate -28.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -3.2%
Ret/ On Assets - 3 Yr. Avg. -6.8%
Return On Total Capital -5.4%
Ret/ On T. Cap. - 3 Yr. Avg. -12.5%
Return On Equity -5.8%
Return On Equity - 3 Yr. Avg. -12.4%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 66.6%
Gross Margin - 3 Yr. Avg. 65.7%
EBITDA Margin -1.1%
EBITDA Margin - 3 Yr. Avg. -6.2%
Operating Margin -4.7%
Oper. Margin - 3 Yr. Avg. -10.3%
Pre-Tax Margin -4.4%
Pre-Tax Margin - 3 Yr. Avg. -10.2%
Net Profit Margin -2.7%
Net Profit Margin - 3 Yr. Avg. -5.3%
Effective Tax Rate 51.6%
Eff/ Tax Rate - 3 Yr. Avg. 68.4%
Payout Ratio 0%

CECO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CECO stock intrinsic value calculation we used $596 million for the last fiscal year's total revenue generated by Career Education. The default revenue input number comes from 2016 income statement of Career Education. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CECO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CECO is calculated based on our internal credit rating of Career Education, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Career Education.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CECO stock the variable cost ratio is equal to 104.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CECO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Career Education.

Corporate tax rate of 27% is the nominal tax rate for Career Education. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CECO stock is equal to 0.8%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CECO are equal to 22.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Career Education operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CECO is equal to -1.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $296 million for Career Education - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 69 million for Career Education is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Career Education at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ Career Education: 1Q Earnings Snapshot   [May-02-18 05:12PM  Associated Press]
▶ Career Education reports 4Q loss   [Feb-21-18 05:41PM  Associated Press]
▶ Is Career Education Corporation (NASDAQ:CECO) Undervalued?   [Dec-14-17 04:45PM  Simply Wall St.]
▶ Talks begin to rewrite rules protecting students from fraud   [Nov-13-17 04:15PM  Associated Press]
▶ Lawsuit seeks new recourse on for-profit college fraud   [Nov-12-17 04:50PM  Associated Press]
▶ Career Education posts 3Q profit   [Nov-02-17 04:47PM  Associated Press]
▶ Career Education posts 2Q profit   [Aug-09-17 10:23PM  Associated Press]
▶ Career Education posts 1Q profit   [May-03-17 04:42PM  Associated Press]
▶ Career Education reports 4Q loss   [Feb-23-17 04:34PM  Associated Press]
▶ CEO of one of Cincinnatis largest public companies steps down   [Jan-24-17 03:00PM  at bizjournals.com]
Financial statements of CECO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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