Piper Jaffray Expects Fundamental Challenges To Weigh On ESI, CECO

Easing regulatory worries (helped by a House vote to deny funding for Gainful Employment implementation) has translated into strong absolute and relative performance from ITT Educational Services Inc. (NYSE: ESI) and Career Education Corp. (NASDAQ: CECO) (up 19.1% and 16.3%, respectively YTD), two of the companies with the highest regulatory risk, Piper Jaffray reports.

“We view this as a short-term phenomenon and would NOT be tempted to chase the lower quality names in the sector,” Piper Jaffray writes. “We expect fundamental challenges, particularly slowing enrollment growth, to weigh on the stocks in 2011.”

ITT Educational Services closed Monday at $75.85; Career Education Corp. closed at $24.11.