However, higher advertising expenses and the costs incurred from opening new campuses are concerning. The stock's decline discounts the concern over Sallie Mae's (SLM) more restrictive student lending practices announced in January. For the full year of 2007, the company delivered earnings of $3.71 per diluted share, up 36.4% from $2.72 reported in 2006.

Revenue grew by 14.7% year-over-year to $869.5 million driven by strong growth in new student enrollment, continued improvement in the retention rate, and an increase in tuition fees by 5%. Revenue per student increased 3.5%. Despite higher marketing and advertising expenses related to the company's aggressive campus and program expansion initiatives during the year, the operating margin expanded 380 bps to 27.8% versus 24.0% in 2006.

For the full year 2008, earnings are expected to be in the range of $4.50 to $4.60 per diluted share. For 2008, quarterly marketing expenditures are expected to increase year-over-year in the range of 10% to 15%. ITT Educational Services is currently selling at 16.9 times trailing 12 month EPS, reflecting the company's revenue and earnings growth profile. Revenues have grown at a 13.1% five year compound annual growth rate (CAGR).

Over the last few years, the stock has traded in a wide P/E range of 16 to 40. The target price is $66.25, which is an 18 P/E multiple on trailing 12-month earnings. The Hold rating on ITT Educational Services is maintained.

UAL Estimates Lowered on Costs

We are maintaining our Hold on UAL Corporation, a.k.a. UAL or United (UAUA), but reducing our target price to $23. UAL is expected to report first quarter earnings in late April. We are reducing our 2008 estimate to a loss of $3.30 per share from earnings of $1.70 per share, largely due to increased fuel costs from surging oil prices, as well as higher maintenance, purchased services, and materials costs.

Results in 2008 should also reflect moderate revenue growth, based upon higher domestic airfares, reduced domestic capacity, and an increased international presence. UAL reported a fourth quarter loss of $0.47 per share, better than the consensus loss of $0.96 per share, but short of our $0.25 loss per share, mainly due to higher fuel costs. Fuel costs rose by $293 million, or 26%, year-over-year as oil prices reached $100 per barrel.

UAL shares are down 37.2% year-to-date compared to median declines of 29.7% for legacy carriers, 26.4% for the airline industry, and 7.3% for the S&P 500. In general, this poor performance for the airline industry reflects expectations of higher fuel costs due to surging oil prices.

While there are steps the industry, United included, can take to alleviate non-fuel cost pressures, the industry is still hostage to oil prices since fuel is the largest single expense category on the income statement.