Last week, ITT Educational Services (ESI) filed an 8-K disclosing that it was being investigated by the Consumer Financial Protection Bureau to determine whether it broke any rules in how it marketed loans.
Reuters The filing, however, hasn’t had much of an impact. Shares of ITT Educational Services have dropped just 3.4% this week but have gained 95% so far in 2013. Corinthian Colleges (COCO), on the other hand, has dropped 27% this year, while DeVry Education (DV) has gained 50% and Apollo Education (APOL) has advanced 30%.
So why don’t investors care about the announcement? First of all, investors have known this was coming. Second, no one believes it will result in a damaging fine. William Blair’s Timo Connor explains:
We view as unlikely a severely punitive settlement against ITT Education from the Consumer Financial Protection Bureau (CFPB) related to its continuing investigation of marketing practices on third-party student lending programs, and we believe the risk is a manageable one for ITT. We continue to like the company's competitive positioning in capacity-constrained, growing educational markets like drafting, electronics, IT, and nursing, and believe the stock will distance itself from legacy student loan issues in the coming years…
Connor‘s optimism also stems from previous penalties assessed by the CFPB: The median fine has been $3.9 million, or just 0.4% of ITT Educational Services market cap, Connor says.
Shares of ITT Educational Services have gained 1.8% to $33.87 today at 1:09 p.m., while Corinthian Colleges has risen 1.7% to $1.79, DeVry Education advanced 0.6% to $35.48 and Apollo Education has ticked down 0.1% to $27.17.
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