Shareholders of ITT Educational Services, Inc. (NYSE:ESI) and Splunk Inc (NASDAQ:SPLK) are having a rough day as the stocks tumbled sharply in the wake of sanctions placed on ESI by the Dept. of Education, and Splunk’s lower-than-expected billings growth rate. Brokerage firms Piper Jaffray and Baird weighed in on the news. Let’s take a closer look.
ITT Educational Services, Inc.
In a research report issued today, Piper Jaffray analyst Peter Appert downgraded shares of ITT Educational Services from Neutral to Underweight, while slashing the price target to $0. The reduced rating and price target come after the the U.S. Department of Education announced that the operator of ITT Technical Institute campuses can no longer enroll students who rely on federal loans to cover tuition.
Shares of ITT Educational are currently trading at $0.56, down $0.84 or 60%.
Appert noted, “A just-announced Dept. of Education ban on ITT Education enrolling new students will likely be the final blow in putting the company out of business. While ESI can likely maintain near-term profitability by further slashing costs, given a ban on new enrollments the company will very quickly become unprofitable, likely forcing shutdown and/or bankruptcy, in our view. We move to an Underweight rating and $0 price target.”
As usual, we like to include the analyst’s trackrecord when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Peter Appert has a yearly average return of 15.1% and a 60% success rate. Appert is ranked #362 out of 4127 analysts.
Baird analyst Steven Ashley reiterated an Outperform rating on shares of Splunk, while raising the price target to $65 (from $62), after the data analytics giant reported a stronger than expected 2Q:FY17 revenue performance with upside across key metrics and significant cloud momentum, combined with a raised outlook for FY:17.
However, the company’s “calculated billings” apparently spooked traders as this figure decelerated on a sequential basis, sending shares down nearly 11%.
Ashley noted, “While results beat printed numbers, whisper numbers were likely higher as the modest beat still represented noticeable slowing in growth. Management pointed to a changing mix of business, with unexpectedly strong adoption of Splunk Cloud, as a mitigating force to Revenue and License growth. This will place greater focus on Billings growth, which while solid at +40% yr-yr, was also slower than recent periods.”
“Splunk Cloud Billings of $25M represented about 11% of total Billings, and were up 200% yr-yr, and 100% above plan. Investors were trying to understand if Splunk Cloud was replacing on premise business or was it incremental? Management said they believe usage mirrors where data is deployed, suggesting Cloud business is incremental, and part of bona fide “Hybrid Architecture,” something Spunk competitors do not offer,” the analyst added.
According to TipRanks.com, analyst Steven Ashley has a yearly average return of 8.2% and a 66% success rate. Ashley has an 17.9% average return when recommending SPLK, and is ranked #518 out of 4127 analysts.
Out of the 36 analysts polled by TipRanks, 29 rate Splunk stock a Buy, while 7 rate the stock a Hold. With a return potential of 21.0%, the stock’s consensus target price stands at $69.72.