ITT Educational Services Inc.'s
) shares nosedived 46% as the company called off its sale and lease
back deal with College Portfolio Buyer LLC (CPB) which would have
boosted its cash position with $119.1 million. The termination of
the deal is a significant blow to investor confidence as the
company is already mired in controversies.
On May 8, 2014, ITT Educational had entered into an agreement with
College Portfolio Buyer to sell and lease back about 24 parcels of
property and other assets to the latter. However, when College
Portfolio asked to extend the diligence period of the deal from Jul
31 to Sep 15, ITT Educational responded in a Securities and
Exchange Commission (SEC) filling that it would prefer to negotiate
with other prospective buyers and the deal was called off.
ITT Educational also mentioned in the filling that the company may
be required to provide a letter of credit to the Department of
Education (DOE). ITT Educational Services is facing the threat of
being declared "not financially responsible" by the DOE as it has
not been able to file its earnings results since the fourth quarter
of 2013 owing to certain uncertainty related to accounting
treatment of the PEAK Private Student Loan Program in the company's
In fact, ITT Educational withdrew its previously provided guidance
for 2014 on May 22 as the company could face restrictions in terms
of student financial aid funding.
On Monday, ITT Educational announced that its CEO Kevin M. Modany
has notified the board of directors about his plan to resign,
effective from Feb 4, 2015. He has already stepped down as the
director and chairman. Modany has been CEO since Apr 2007.
The company has named John Dean as executive chairman.
ITT Educational is also facing various litigation processes. A
number of law firms including Pomerantz LLP, Johnson & Weaver,
LLP, Rosen Law Firm, P.A., Levi & Korsinsky, and Law Offices of
Howard G. Smith have begun investigating potential claims against
ITT Educational. The firms will inspect whether the company has
violated any of the federal securities laws or has provided
inaccurate statements regarding its true financial position. Some
of the investigations also concern the company's credit practices.
All these controversies have severely affected the company's share
prices in this year. Shares of this Zacks Rank #5 (Strong Sell)
company have lost a significant 77% since Jan 2014.
However, some other education companies are doing well. DeVry
Education Group Inc. (
), Grand Canyon Education Inc. (
) and Capella Education Company (
), all carrying a Zacks Rank #2 (Buy).
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