Intrinsic value of Career Education Corporation - CECO

Previous Close

$17.76

  Intrinsic Value

$6.32

stock screener

  Rating & Target

str. sell

-64%

Previous close

$17.76

 
Intrinsic value

$6.32

 
Up/down potential

-64%

 
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

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  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
  593
  606
  622
  639
  659
  680
  703
  728
  755
  784
  815
  848
  884
  921
  961
  1,003
  1,047
  1,094
  1,144
  1,197
  1,252
  1,311
  1,372
  1,437
  1,506
  1,578
  1,654
  1,734
  1,818
  1,906
Variable operating expenses, $m
  559
  572
  586
  603
  621
  641
  662
  686
  711
  738
  765
  796
  829
  864
  901
  940
  982
  1,026
  1,073
  1,122
  1,174
  1,229
  1,287
  1,348
  1,412
  1,480
  1,551
  1,626
  1,705
  1,787
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
  559
  572
  586
  603
  621
  641
  662
  686
  711
  738
  765
  796
  829
  864
  901
  940
  982
  1,026
  1,073
  1,122
  1,174
  1,229
  1,287
  1,348
  1,412
  1,480
  1,551
  1,626
  1,705
  1,787
Operating income, $m
  34
  35
  36
  37
  38
  39
  41
  42
  44
  46
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
  103
  108
  113
  118
EBITDA, $m
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
  138
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
Earnings before tax, $m
  34
  35
  35
  36
  37
  38
  40
  41
  42
  44
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
Tax expense, $m
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
Net income, $m
  25
  25
  26
  26
  27
  28
  29
  30
  31
  32
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  52
  54
  56
  58
  61
  64
  66
  69
  73
  76

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  357
  366
  375
  386
  397
  410
  424
  439
  455
  473
  492
  512
  533
  555
  579
  605
  632
  660
  690
  722
  755
  791
  828
  867
  908
  952
  997
  1,046
  1,096
  1,149
Adjusted assets (=assets-cash), $m
  357
  366
  375
  386
  397
  410
  424
  439
  455
  473
  492
  512
  533
  555
  579
  605
  632
  660
  690
  722
  755
  791
  828
  867
  908
  952
  997
  1,046
  1,096
  1,149
Revenue / Adjusted assets
  1.661
  1.656
  1.659
  1.655
  1.660
  1.659
  1.658
  1.658
  1.659
  1.658
  1.657
  1.656
  1.659
  1.659
  1.660
  1.658
  1.657
  1.658
  1.658
  1.658
  1.658
  1.657
  1.657
  1.657
  1.659
  1.658
  1.659
  1.658
  1.659
  1.659
Average production assets, $m
  81
  82
  85
  87
  90
  92
  96
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  156
  163
  170
  178
  187
  195
  205
  215
  225
  236
  247
  259
Working capital, $m
  -58
  -59
  -61
  -63
  -65
  -67
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -103
  -107
  -112
  -117
  -123
  -128
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -187
Total debt, $m
  2
  5
  9
  13
  17
  22
  27
  32
  38
  44
  51
  58
  66
  74
  83
  92
  102
  112
  123
  135
  147
  160
  173
  187
  202
  218
  235
  252
  271
  290
Total liabilities, $m
  130
  133
  136
  140
  144
  149
  154
  159
  165
  172
  178
  186
  193
  202
  210
  220
  229
  240
  251
  262
  274
  287
  300
  315
  330
  345
  362
  380
  398
  417
Total equity, $m
  228
  233
  239
  246
  253
  261
  270
  280
  290
  301
  313
  326
  339
  354
  369
  385
  402
  420
  440
  460
  481
  504
  527
  552
  579
  606
  635
  666
  698
  732
Total liabilities and equity, $m
  358
  366
  375
  386
  397
  410
  424
  439
  455
  473
  491
  512
  532
  556
  579
  605
  631
  660
  691
  722
  755
  791
  827
  867
  909
  951
  997
  1,046
  1,096
  1,149
Debt-to-equity ratio
  0.010
  0.020
  0.040
  0.050
  0.070
  0.080
  0.100
  0.110
  0.130
  0.150
  0.160
  0.180
  0.190
  0.210
  0.220
  0.240
  0.250
  0.270
  0.280
  0.290
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
Adjusted equity ratio
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  25
  26
  26
  27
  28
  29
  30
  31
  32
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  52
  54
  56
  58
  61
  64
  66
  69
  73
  76
Depreciation, amort., depletion, $m
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
Funds from operations, $m
  34
  34
  35
  36
  37
  38
  39
  40
  41
  43
  43
  45
  47
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
Change in working capital, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
Cash from operations, $m
  35
  36
  37
  38
  39
  40
  41
  43
  44
  46
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
Maintenance CAPEX, $m
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
New CAPEX, $m
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from investing activities, $m
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -23
  -25
  -26
  -28
  -28
  -30
Free cash flow, $m
  28
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
Issuance/(repayment) of debt, $m
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
Total cash flow (excl. dividends), $m
  30
  31
  32
  33
  34
  35
  36
  38
  39
  40
  41
  43
  45
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
Retained Cash Flow (-), $m
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
Prev. year cash balance distribution, $m
  132
  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
  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
Cash available for distribution, $m
  158
  26
  26
  26
  26
  27
  27
  28
  29
  29
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
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
  151
  23
  22
  21
  21
  20
  19
  17
  16
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 Corporation (CECO)

Valuation Ratios
P/E Ratio -64
Price to Sales 1.7
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 202.8
Price to Free Cash Flow 608.5
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 $581 million for the last fiscal year's total revenue generated by Career Education Corporation. The default revenue input number comes from 0001 income statement of Career Education Corporation. 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 Corporation, 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 Corporation.
    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 94.3%.

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 Corporation.

Corporate tax rate of 27% is the nominal tax rate for Career Education Corporation. 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%.

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 13.6%.

Life of production assets of 13.5 years is the average useful life of capital assets used in Career Education Corporation 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 -9.8%. 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 - $355.203 million for Career Education Corporation - 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 69.528 million for Career Education Corporation 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 Corporation at the current share price and the inputted number of shares is $1.2 billion.

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