* Q4 EPS $3.14 vs est. $3.10
* Sees further dip in 2011 student enrollments
* Preliminary 2009 default rates could be higher
* Shares up 9 pct; outlook could have been worse
(Adds conference call on outlook, default rates)
BANGALORE, Jan 20 ITT Educational Services
ESI.N, the 4th-largest U.S. for-profit college, forecast
lower 2011 earnings and a further dip in new student starts as
post-secondary private education firms adapt to new rules amid
tougher regulatory scrutiny.
But investors marked up the stock -- to its highest in
nearly 4 months -- as ITT's new student numbers and its outlook
were not as bad as some had predicted, and fourth-quarter
earnings beat market expectations.
ITT's new student enrollments fell 9.4 percent to 17,722 in
October-December, compared with an increase of more than 31
percent in the same period a year ago.
Market leader Apollo Group APOL.O this month reported a
more than 40 percent drop in new student enrollments at its
flagship University of Phoenix in its latest quarter.
"(ITT's) New enrollment, down in the single digits, is a
far better case than the bears in the stock had expected," said
Trace Urdan, analyst at Signal Hill Group.
ITT, which in October posted its first drop in student
starts in a decade, said its internal goal for 2011 earnings
was $8.50-$10.50 a share, implying at 6-25 percent drop from
Analysts had pencilled in 2011 earnings of $10.92 a share,
according to Thomson Reuters I/B/E/S.
"We expect (ITT's guidance) range will be viewed as a
modest positive by investors given the stock would now imply an
earnings multiple of about 6 times projected 2011 EPS," said
William Blair analyst Brandon Dobell.
For-profit colleges have been battling to attract new
students amid intense government scrutiny of a sector that has
been criticised for providing courses that do not guarantee
jobs and leave students with debt.
The industry had seen rapid growth during the recession as
high jobless rates prompted people to retrain.
For industry TAKE A LOOK: [ID:nSGE67G0IH]
The government plans to introduce new rules in July to make
for-profit colleges more accountable for the $145 billion
federal aid they receive to fund student loans.
The S&P 1500 Education Services sub-index .15GSPEDUS
almost halved in April-December last year as investors feared
the new rules would dent growth at these colleges.
CEO Kevin Modany said ITT's colleges, which offer
technology-oriented degree programs, will see year-on-year
declines in new student enrollments in every quarter this year.
"We'll continue to have very difficult year-over-year
comparisons for new student enrollment, particularly in the
first and second quarters," he said on a conference call.
Carmel, Indiana-based ITT, which has some 85,000 students
enrolled across 130 campuses, posted October-December income of
$3.14 per share on revenue of $410.1 million. [ID:nASA01ELY]
ITT said late last year it would not change its enrollment
policies until the new rules were finalized. Analysts have said
ITT is one of the companies that will have to make operational
changes to meet the new rules, as it has one of the lowest
ex-student loan repayment rates. ITT Technical Institute has a
31.2 percent repayment rate.
Apollo and Corinthian Colleges COCO.O are amending their
student intake policies to effectively head off students
unlikely to pay back debt.
On the call, ITT's CFO Dan Fitzpatrick said the preliminary
2-year cohort default rate (CDR) for the 2009 federal fiscal
year for ITT Technical Institute will be considerably higher
than the final 2008 rates.
CDRs measure the percentage of borrowers who enter
repayment on some federal loan programs during a particular
fiscal year and then default within the same or next fiscal
Colleges risk losing their eligibility for federal student
aid programs if their CDR exceeds certain thresholds.
ITT shares, which have dropped by around a quarter in the
last six months, were trading up 9.5 percent at $68.72 on the
New York Stock Exchange and helped push the sector sub-index up
by 2.3 percent to a 2-week high.
(Reporting by A.Ananthalakshmi in Bangalore; Editing by Roshni
Menon and Ian Geoghegan)