Intrinsic value of Career Education - CECO

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$12.64

  Intrinsic Value

$0.85

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  Rating & Target

str. sell

-93%

Previous close

$12.64

 
Intrinsic value

$0.85

 
Up/down potential

-93%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2016), $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 0.9

 

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
  718
  735
  753
  775
  798
  824
  852
  882
  915
  950
  988
  1,028
  1,071
  1,116
  1,164
  1,215
  1,269
  1,326
  1,386
  1,450
  1,517
  1,588
  1,663
  1,742
  1,825
  1,912
  2,004
  2,101
  2,202
  2,309
Variable operating expenses, $m
 
  798
  816
  836
  860
  886
  914
  945
  978
  1,014
  1,053
  1,085
  1,129
  1,176
  1,226
  1,279
  1,335
  1,394
  1,457
  1,523
  1,593
  1,667
  1,745
  1,827
  1,914
  2,005
  2,101
  2,202
  2,308
  2,420
  2,537
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
  798
  816
  836
  860
  886
  914
  945
  978
  1,014
  1,053
  1,085
  1,129
  1,176
  1,226
  1,279
  1,335
  1,394
  1,457
  1,523
  1,593
  1,667
  1,745
  1,827
  1,914
  2,005
  2,101
  2,202
  2,308
  2,420
  2,537
Operating income, $m
  -32
  -80
  -81
  -83
  -85
  -87
  -90
  -93
  -96
  -99
  -102
  -97
  -101
  -106
  -110
  -115
  -120
  -125
  -131
  -137
  -143
  -150
  -157
  -164
  -172
  -180
  -189
  -198
  -207
  -217
  -228
EBITDA, $m
  -9
  -61
  -63
  -64
  -66
  -68
  -70
  -73
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -104
  -108
  -113
  -119
  -124
  -130
  -136
  -142
  -149
  -156
  -163
  -171
  -180
  -188
  -197
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  17
  18
Earnings before tax, $m
  -31
  -80
  -81
  -83
  -86
  -88
  -91
  -94
  -97
  -101
  -105
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
  -159
  -166
  -175
  -183
  -192
  -202
  -212
  -223
  -234
  -246
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
  -80
  -81
  -83
  -86
  -88
  -91
  -94
  -97
  -101
  -105
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
  -159
  -166
  -175
  -183
  -192
  -202
  -212
  -223
  -234
  -246

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
  370
  379
  389
  400
  412
  425
  439
  455
  472
  490
  509
  530
  552
  576
  600
  627
  654
  684
  715
  748
  783
  819
  858
  898
  941
  986
  1,033
  1,083
  1,136
  1,191
Adjusted assets (=assets-cash), $m
  363
  370
  379
  389
  400
  412
  425
  439
  455
  472
  490
  509
  530
  552
  576
  600
  627
  654
  684
  715
  748
  783
  819
  858
  898
  941
  986
  1,033
  1,083
  1,136
  1,191
Revenue / Adjusted assets
  1.939
  1.941
  1.939
  1.936
  1.938
  1.937
  1.939
  1.941
  1.938
  1.939
  1.939
  1.941
  1.940
  1.940
  1.938
  1.940
  1.938
  1.940
  1.939
  1.938
  1.939
  1.937
  1.939
  1.938
  1.940
  1.939
  1.939
  1.940
  1.940
  1.938
  1.939
Average production assets, $m
  59
  60
  61
  63
  64
  66
  68
  71
  73
  76
  79
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  145
  151
  159
  166
  174
  183
  192
Working capital, $m
  79
  -121
  -123
  -127
  -130
  -134
  -138
  -143
  -148
  -154
  -160
  -166
  -173
  -180
  -187
  -196
  -204
  -213
  -223
  -233
  -244
  -255
  -267
  -279
  -293
  -307
  -321
  -337
  -353
  -370
  -388
Total debt, $m
  0
  5
  11
  17
  24
  32
  41
  50
  61
  72
  83
  96
  110
  124
  140
  156
  173
  191
  211
  231
  253
  275
  299
  325
  351
  379
  409
  440
  473
  507
  543
Total liabilities, $m
  238
  243
  249
  255
  262
  270
  279
  288
  299
  310
  321
  334
  348
  362
  378
  394
  411
  429
  449
  469
  491
  513
  537
  563
  589
  617
  647
  678
  711
  745
  781
Total equity, $m
  322
  127
  130
  134
  137
  142
  146
  151
  157
  162
  169
  175
  182
  190
  198
  207
  216
  225
  235
  246
  257
  269
  282
  295
  309
  324
  339
  356
  373
  391
  410
Total liabilities and equity, $m
  560
  370
  379
  389
  399
  412
  425
  439
  456
  472
  490
  509
  530
  552
  576
  601
  627
  654
  684
  715
  748
  782
  819
  858
  898
  941
  986
  1,034
  1,084
  1,136
  1,191
Debt-to-equity ratio
  0.000
  0.040
  0.080
  0.130
  0.180
  0.230
  0.280
  0.330
  0.390
  0.440
  0.500
  0.550
  0.600
  0.650
  0.700
  0.750
  0.800
  0.850
  0.900
  0.940
  0.980
  1.020
  1.060
  1.100
  1.140
  1.170
  1.210
  1.240
  1.270
  1.300
  1.330
Adjusted equity ratio
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -19
  -80
  -81
  -83
  -86
  -88
  -91
  -94
  -97
  -101
  -105
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
  -159
  -166
  -175
  -183
  -192
  -202
  -212
  -223
  -234
  -246
Depreciation, amort., depletion, $m
  23
  18
  18
  19
  19
  19
  20
  20
  20
  21
  21
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
Funds from operations, $m
  -10
  -61
  -63
  -65
  -67
  -69
  -72
  -74
  -77
  -80
  -84
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
  -139
  -145
  -153
  -160
  -168
  -177
  -186
  -195
  -205
  -215
Change in working capital, $m
  -16
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Cash from operations, $m
  6
  -59
  -60
  -62
  -63
  -65
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -92
  -96
  -101
  -105
  -110
  -116
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -170
  -179
  -188
  -197
Maintenance CAPEX, $m
  0
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
New CAPEX, $m
  -4
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from investing activities, $m
  -34
  -10
  -10
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -18
  -18
  -19
  -19
  -20
  -22
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
Free cash flow, $m
  -28
  -69
  -71
  -73
  -75
  -77
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -193
  -203
  -213
  -224
  -235
Issuance/(repayment) of debt, $m
  -38
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
  36
Issuance/(repurchase) of shares, $m
  1
  82
  84
  87
  89
  92
  96
  99
  103
  107
  111
  107
  112
  117
  122
  128
  134
  141
  148
  155
  162
  170
  179
  188
  197
  207
  217
  228
  240
  252
  265
Cash from financing (excl. dividends), $m  
  11
  87
  90
  93
  96
  100
  105
  108
  113
  118
  123
  120
  126
  131
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  247
  259
  273
  286
  301
Total cash flow (excl. dividends), $m
  -17
  17
  19
  20
  22
  23
  25
  26
  27
  29
  30
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
  54
  56
  59
  62
  66
Retained Cash Flow (-), $m
  16
  -82
  -84
  -87
  -89
  -92
  -96
  -99
  -103
  -107
  -111
  -107
  -112
  -117
  -122
  -128
  -134
  -141
  -148
  -155
  -162
  -170
  -179
  -188
  -197
  -207
  -217
  -228
  -240
  -252
  -265
Prev. year cash balance distribution, $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
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
 
  133
  -65
  -66
  -68
  -69
  -71
  -73
  -76
  -78
  -81
  -84
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -142
  -149
  -156
  -164
  -172
  -180
  -189
  -199
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
 
  127
  -60
  -58
  -56
  -54
  -52
  -49
  -47
  -45
  -42
  -40
  -37
  -35
  -32
  -29
  -26
  -23
  -21
  -18
  -16
  -13
  -11
  -9
  -8
  -6
  -5
  -4
  -3
  -2
  -1
Current shareholders' claim on cash, %
  100
  80.5
  64.7
  52.0
  41.7
  33.4
  26.7
  21.4
  17.1
  13.7
  10.9
  8.8
  7.2
  5.8
  4.7
  3.8
  3.0
  2.5
  2.0
  1.6
  1.3
  1.0
  0.8
  0.7
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2
  0.1

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 -45.6
Price to Sales 1.2
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 144.3
Price to Free Cash Flow 433
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 $704 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 111.1%.

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 3.5% 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%.

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 8.3%.

Life of production assets of 6.3 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 -16.8%. 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 - $322 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 69.077 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 $0.9 billion.

RELATED COMPANIES Price Int.Val. Rating
STRA Strayer Educat 91.45 91.28  hold
LOPE Grand Canyon E 92.14 52.80  sell
BPI Bridgepoint Ed 8.83 3.68  str.sell
APEI American Publi 25.45 39.36  str.buy
LINC Lincoln Educat 2.13 0.41  str.sell

COMPANY NEWS

▶ 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]
▶ 10 Good Stocks Under $10 From Around the World   [Sep-02-16 09:30AM  at Kiplinger]
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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