Saturday, February 28, 2009

A Short Story: Baxter International

I am taking a contrarian stand on Baxter International (BAX), a global diversified healthcare company. Baxter is a major manufacturer and distributor of medical devices, pharmaceuticals and biotech products. Products are used in healthcare facilities of all types including hospitals, nursing homes and specialized medical centers such as rehab centers and kidney dialysis centers.

The company is financially strong; sales growth is exceptional and earnings continue to surprise. Baxter has a solid balance sheet.

Over the past twelve months, sales grew by nearly 10%; significantly better than its five year growth rate of 6.76%. Earning grew by 21.19% as compared to one year ago and this was also stronger than its five year growth rate of 14.03%. Gross profit, operating profit and net profit margins are all above their five year averages. The consensus EPS estimate for FY09 is $3.74 compared with reported FY08 EPS of $3.16.

So what is there not to like? The medical equipment, supplies and distribution business is one bright spot in an otherwise dismal market. I believe the market has driven prices in this industry to unsustainable levels; momentum has displaced the fundamentals.

Herman Saftlas, the Standard & Poor’s analyst that covers Baxter sees continued growth ahead and higher margins. He gives the company a twelve month target price of $65. Alex Kolb at Zacks Investment Research also sees a bright future for Baxter. Barron’s also makes a strong case for Baxter.

Changes are coming to the healthcare industry. Medicare and Medicaid reimbursement rates will be cut under the Obama administration’s healthcare plan. Hospitals and other healthcare facilities will tighten inventories. How material these reductions will be to Baxter are hard to quantify.

Baxter is certainly a strong company and I take no issue with the analyst’s predictions of the future. However, my analysis pays more attention to free cash flow than it does to earnings. Growth needs to be paid for with cash and free cash flow is, in my opinion, the best metric to use in this regard.

I estimate that Baxter will generate $1.97 in free cash flow over the next twelve months as compared to $1.43 in FY08. I note that long term debt and other long term liabilities total $5,541 billion.

My value estimation, based on the fundamental factors I consider important, leads me to conclude that Baxter’s fair market value is approximately $37.56.

Disclosure: I have no position in Baxter International.

Monday, February 23, 2009

Teva Pharmaceutical: A Fair Price

Teva Pharmaceutical Industries Ltd. (TEVA) is the Israel-based maker of generic drugs and pharmaceuticals. TEVA is among the world’s largest and most successful generic drug companies. TEVA develops, produces and markets generic drugs covering all treatment categories. The Company has a pharmaceutical business, whose principal products are Copaxone for multiple sclerosis and Azilect for Parkinson’s disease, as well as a specialty pharmaceutical business, which consists primarily of respiratory products.

Standard and Poor’s rates TEVA as a strong buy with a target price of $56. This is based, in part, on S&P’s forecast of a 29% rise in sales for 2009 from the acquisition of Barr Pharmaceuticals, the introduction of new products and sales in new markets.

TEVA is selling at a lofty 65x trailing twelve month earnings of $0.78; 3.4x sales and 2.3x book value.

Quarter over Quarter, sales increased about 10% for the quarter ending 12/08. Sales for the TTM increased about 17.8% vs. TTM 1 year ago. These sales growth rates are substantially below the 5-year average of 27.6%

Earning per share for the most recent quarter crated by 227% vs. the 1-year ago quarter. Similarly, EPS declined 70% for the TTM compared with the prior year period. The 5-year EPS growth rate is -7.7%.

Gross margins for the TTM at 53.84% exceed the 5-year average gross margin of 50.89%. However, operating margins for the TTM period are at 10.33% as compared to the 5-year average of 16%. Net margins are down to 5.79% for the TTM period from the 5-year average of 11.7%.

Measures of management effectiveness also show deceleration. Trailing twelve month ROA, ROI and ROE are all below 5-year averages.

We agree with the analyst at S&P who considers TEVA a company with good prospects ahead. Generic drugs are definitely a growth market worldwide and TEVA has a strong product pipeline.

However, we disagree with his conclusions. In our assessment, TEVA is currently fairly priced in the $46-$47 range. We base our estimate on our evaluation of TEVA’s profitability, ability to generate free cash flow, and balance sheet adjustments for intangible assets and long term debt.

Sunday, February 15, 2009

Terra Nitrogen: Food for Thought

Terra Nitrogen Company, L.P. (TNH) is a limited partnership that produces and distributes nitrogen fertilizer products. Its principal products are anhydrous ammonia (or ammonia) and urea ammonium nitrate solutions (UAN), which the Company manufactures at its facility in Verdigris, Oklahoma.

The company reported FY 08 earnings per share of $14.90 compared to $10.90 for FY 07, representing a 36.73% increase. EPS for the MRQ is reported at $3.55, down from $3.59 in the December 07 quarter. Sales are up 41.92% from $636.308 to $903.017 for the year. The five year growth rate for sales is 17.73.

Gross margins have expanded to $47.84%, well above the five year average of 29.01%. Net margins are hight at 46.77%, also well above the five year average of 27.33%.

Are these high growth rates sustainable? Current, fast-changing prices of agricultural commodities and fertilizers make it risky for farmers to invest in fertilizers. In many countries, it is anticipated that distributors and farmers will experience trouble in accessing credit to purchase agricultural inputs, including fertilizers. Where there are sufficient phosphorus and potassium reserves in soils, farmers are likely to rely temporarily on the reserves. Nitrogen should not be as greatly affected.

Nitrogen supply/demand conditions are tight, driven by strong nitrogen fertilizer demand worldwide. Production outages in exporting countries and delays in the commissioning of new capacity further tightens supply. World grain stocks remain at a record low despite two good consecutive harvests in 2007 and 2008. Projections by the Food and Agricultural Organization of the United Nations and the US Department of Agriculture point to a modest recovery in 2009.

We construct our estimate of TNH's value by developing risk-adjusted capitalization rates for our estimate of free cash flow. The reciprocal of the capitalization rate is the Price/Free Cash Flow multiple.

Risk Premiums
Market Value of Equity 11.65%
Book Value of Equity 13.57%
5-Year Average Net Income 11.19%
Market Value of Invested Capital 2.78%
Total Assets 14.02%
5-Year Average EBITDA 12.23%
Sales 12.83%
Number of Employees 15.68%
Average Operating Margin 9.36%
Coefficient of Variation of Operating Margin 14.31%
Coefficient of Variation of Return on Book Equity 12.75%

Mean Risk Premium 12.76%

Projected Free Cash Flow per Share $35.04
Projected Average Valuation $274.61

Disclosure: The author has no financial interest in TNH

Thursday, February 12, 2009

The Bargin Bin: Cisco Systems

Times have surely changed, if we can ask the questions, “Is Cisco Systems CSCO in the bargain bin?” “Is Cisco now a 'value” stock?” Is it a “value” trap?

Sales for the most recent quarter (MRQ) vs the quarter one ago are down from $9,831 billion to $9,089 billion or 7.5%. Sales, on a trailing twelve month (TTM) basis, are up about 5.2%. Standard and Poors projects a sales decrease of 9% in FY 09 reflecting the weak global economy.

Similarly, EPS for the quarter ending January 09 were down to $0.25 from $0.33 a year ealier. This represents a 23% decline. EPS (TTM) vs TTM one year ago are down 2.9%. S&P forecasts FY 09 EPS of $1.15. First Call reports consensus estimates of $1.25 for FY 09 with a range of $1.18 to $1.33.

Of greater concern to us, is margin contraction. Gross margins have been contracting since 2004 when GM stood at 68.6%. S&P forecasts FY 09 gross margins of 64%. Operating profit margins have also contracted. Reported FY 04 operating profit margins were 28.5%. For the TTM, operating profit margins contracted to 22.3%. On the plus side, net margins have held fairly steady at 20%.

Cisco's balance sheet is strong. It has about $5.04 in cash per share on hand and generates $2.03 in free cash flow. Long term debt to equity is about 0.17 and total debt to equity is about 0.19. The current ratio is a healthy 2.79.
Return on equity is a respectable 23.8% and ROA is 14%. These are very solid numbers and compare very favorably with industry averages.

Standard and Poors has given CSCO a twelve month price target of $16.00. First Call reports a mean price target of $19.20 with a range of $13 to $33. Price targets were lowered 14 times in the past four weeks.

Value staocks are most often defined in terms of low P/E or low P/BV ratios. Cisco is trading at 13X trailing earnings and in-line with the S&P 500. Its P/BV is 2.55; not low. In a recent post, I wrote about the use of the Price/Sales ratio. In this case, the PSR is no bargain at 2.4X.

Our preference is to use a less common measure to determine value; the Price/Free Cash Flow ratio. We think FCF is a better metric to use than earnings. Free cash flow can be used to fund growth (organic and through acquisition), reduce debt, pay a dividend or repurchase debt. Free cash provides value to the shareholder, if it is wisely invested.

Cisco has a current P/FCF ratio of 10X. A year ago, it was 16X. The five year average P/FCF for CSCO is 19X. Going back a few more years, the seven year average is 22X.

Cisco reported $1.72 in free cash flow for the TTM ending January 09. Over the next twelve months, we project CSCO to generate $1.96 in free cash. At current prices, the forward P/FCF is about 8.25X. Our target value for CSCO is $28.96, representing a forward P/FCF of about 14.8X. This is less than year-ago levels and reflects continuing weakness in the global economy.

Disclosure: I hold a long position in CSCO.

Sunday, February 8, 2009

The Long and the Short of it All

We are presenting a list of companies which we believe are currently mispriced, based on our estimate of fair value, by the market.

We develop our fair value ranges by projected free cash flow out one year and estimating an appropriate FCF multiple based on our assessment of risk and the strength of the balance sheet.

Cisco Systems Recent Price $17.04 Value Range 21.86 - $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate and collaborate. Cisco Systems, Inc.'s products, which include primarily routers, switches, and products that the Company refers to as its technologies, are installed at enterprises, public institutions, telecommunications companies, commercial businesses and personal residences. In November 2008, the Company acquired Jabber Inc. In January 2009, the Company acquired Richards-Zeta Building Intelligence, Inc

CSG Systems International Recent Price $15.47 Value Range $21.39 - $28

CSG Systems International, Inc. (CSG) is a provider of outsourced solutions that facilitate customer interaction management on the behalf of its clients, generating approximately 95% of its revenues during the year ended December 31, 2007, from the North American cable and Direct Broadcast satellite (DBS) communications markets. The Company's solutions also support a number of other industries, such as financial services, utilities, telecommunications, and home security. CSG's solutions manage customer interactions, such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client's field technicians to the customer's home. In May 2008, CSG completed the acquisition of DataProse, Inc.

Forest Laboratories Recent Price$26.21 Value Range$51.57 - $64.09

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician's prescription, as well as non-prescription pharmaceutical products sold over the counter. The Company's products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its sales forces, Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Forest Laboratories, Inc.'s products include Lexapro, the Company's selective serotonin reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate to severe Alzheimer's disease; Bystolic, its novel beta-blocker for the treatment of hypertension, and Campral, for the maintenance of alcohol abstinence.

(Disclosure: We hold a position in FRX.)

Robert Half International RHI Recent Price $18.22 Value Range $26.27 - $30.14

Robert Half International Inc. provides specialized staffing and risk consulting services through such divisions as Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields

Advance Auto Parts AAP Recent Price 33.63 Value Range 10.02 – 12.07

Advance Auto Parts, Inc. (Advance) operates within the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pickup trucks, vans, minivans and sport utility vehicles). The Company is a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself (DIY) and do-it-for-me (DIFM) customers in the United States, based on store count and sales. Advance operates in two business segments: Advance Auto Parts (AAP) and Autopart International (AI). The AAP segment consists of its store operations within the United States, Puerto Rico and the Virgin Islands, which operates under the trade names Advance Auto Parts, Advance Discount Auto Parts and Western Auto. The AI segment consists solely of the operations of Autopart International, which operates as an independent, wholly owned subsidiary.

American Eagle Outfitters AEO Recent Price 9.64 Value Range 0.63 - $0.75

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE's original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

Bed Bath & Beyond Recent Price$24.00 Value Range $ 8.03 - $9.73

Bed Bath & Beyond Inc. and subsidiaries is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. The Company sells a range of merchandise principally, including domestics merchandise and home furnishings as well as food, giftware, health and beauty care items and infant and toddler merchandise. In March 2007, the Company acquired buybuy BABY. In May 2008, the Company announced the formation of a joint venture with Home & More, S.A. de C.V., a privately held home products retailer operating in Mexico

Brown-Forman Corporations Recent Price $48.18 Value Range $8.17 - $10.28

Brown-Forman Corporation manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Its principal beverage brands are Jack Daniel's Tennessee Whiskey, Southern Comfort, Finlandia Vodka, Herradura Tequila, Gentleman Jack, Jekel Vineyards Wines, Jack Daniel's Single Barrel, Jack Daniel's Ready-to-Drinks, Bel Arbor Wines, Bolla Wines, Bonterra Vineyards Wines, Old Forester Bourbon, Canadian Mist Blended Canadian Whisky, Pepe Lopez Tequilas, Chambord Liqueur, Sanctuary Wines, Don Eduardo Tequila, Sonoma-Cutrer Wines, Early Times Kentucky Whisky, Tuaca Liqueur, el Jimador Tequila, Stellar Gin, Five Rivers Wines and Woodford Reserve Bourbon. The Company's core brand in its portfolio is Jack Daniel's, which is a spirits brand and American whiskey brand. Its other brands are Southern Comfort and Canadian Mist. Its largest wine brands are Fetzer, Korbel and Bollab.

CLARCOR Recent Price $32.82 Value Range $12.18 -$17.86

CLARCOR Inc. conducts business in three segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Company's Engine/Mobile Filtration Segment sells filtration products used on engines and in mobile equipment applications, including trucks, automobiles, buses and locomotives, and marine, construction, industrial, mining and agricultural equipment.. The Company's Industrial/Environmental Filtration Segment centers on the manufacturing and marketing of filtration products used in industrial and commercial processes and in buildings, and infrastructures of various types. The Company's consumer and industrial packaging products business is conducted, through a wholly-owned subsidiary, J.L. Clark, Inc. (J.L. Clark). In May 2008, the Company acquired a 30% share in BioProcess H2O LLC (BPT), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. The Company acquired 100% of the Keddeg Company on December 29, 2008

Cree Recent Price $21.84 Value Range $4.51 - $6.20

Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in Durham, North Carolina, in a six-part process, which includes SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing Additionally, it packages certain LED components and power and RF products at its North Carolina facilities, its facility in Huizhou, China and in other foreign countries through the use of subcontractors. It also operates research and development facilities in Goleta, California and Hong Kong. In February 2008, it acquired LED Lighting Fixtures, Inc.

Edwards Lifesciences Recent Price $61.10 Value Range $16.74 - $21.24

Edwards Lifesciences Corporation (Edwards Lifesciences) is a global player in products and technologies designed to treat cardiovascular disease. The Company focuses on specific cardiovascular opportunities, including heart valve disease, critical care technologies and peripheral vascular disease. The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular, and through 2007, Other Distributed Products

Interactive Data Corp Recent Price$24.42 Value Range $4.90 - $6.34

Interactive Data Corporation is a global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company's customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. It markets and sells its services either by direct subscriptions or through third-party business alliances. Its offerings are developed and delivered to customers through four businesses that consist of its two operating segments: Institutional Services and Active Trader Services. In May 2007, the Company completed the acquisition of the assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. In August 2008, announced the closing of its acquisition of Kler's Financial Data Service S.r.l. In December 2008, the Company acquired a 79% interest in NTT DATA Financial Corporation

ITT Educational Services Recent Price $128.87 Value Range$23.33 - $33.99

ITT Educational Services, Inc. (ITT/ESI) is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2007, the Company offered diploma, associate, bachelor and master degree programs to approximately 53,000 students. All of its institutes are authorized by the applicable education authorities of the states, in which they operate and recruit, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). All of its programs were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. As of December 31, 2007, it offered 29 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. In October 2008, the Company announced that it has opened its first ITT Technical Institute in Mississippi.

Makita Corporation Recent Price $22.81 Value Range $1.71 - $2.00

Makita Corporation (Makita), incorporated on December 10, 1938, is principally engaged in manufacturing and sale of a range of power tools for professional users worldwide. Makita's power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. The Company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 31, 2008 (fiscal 2008), approximately 85% of Makita's sales were outside of Japan. The Company specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. As of March 31, 2008, Makita had over 100 service depots outside of Japan. As of fiscal 2008, 28 of these service depots were located in the United States, and 19 of these service depots were located in China.

NIKE Incorporated Recent Price $48.68 Value Range $15.83 - $21.46

NIKE, Inc. (NIKE) is engaged in the design, development and worldwide marketing of footwear, apparel, equipment, and accessory products. NIKE sells athletic footwear and athletic apparel. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 180 countries around the world. Its products include running, training, basketball, soccer, sport-inspired urban shoes, and childrens shoes. It also markets shoes designed for aquatic activities, baseball, bicycling, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. On March 3, 2008, the Company acquired Umbro Ltd. (Umbro). On April 17, 2008, it completed the sale of its Bauer Hockey subsidiary.

Paychex Recent Price $26.93 Value Range$4.55 - $6.26

Paychex, Inc. (Paychex) is a provider of payroll and integrated human resource and employee benefits outsourcing solutions for small to medium-sized businesses in the United States. The Company's Payroll and Human Resource Services product lines offer a portfolio of products and services that help clients to meet their payroll and human resource needs. Its Payroll services are provided through either its Core Payroll or Major Market Services, and include payroll processing, payroll tax administration services, employee payment services, and other payroll-related services, including regulatory compliance. Paychex's Human Resource Services primarily include human resource outsourcing services, which include Paychex Premier Human Resources and its Professional Employer Organization; retirement services administration; workers' compensation insurance services; health and benefits services; time and attendance solutions, and other human resource services and products.

Raytheon Recent Price $47.80 Value Range 12.68 - $19.58

Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of technologically advanced products, services and solutions for governmental customers in the United States and worldwide. The Company operates through six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). During the year ended December 31, 2007, the Company completed the sale of Raytheon Aircraft Company (Raytheon Aircraft) and Flight Options LLC (Flight Options), two former operating commercial aviation businesses. In October 2007, the Company acquired Oakley Networks, Inc., a privately held technology company based in Salt Lake City, Utah, which provides cyber security and data leakage prevention systems. In April 2008, the Company acquired SI Government Solutions. In July 2008, the Company acquired Telemus Solutions, Inc

Rockwell Collins Recent Price $38.90 Value Range $12.94 - $15.93

Rockwell Collins, Inc. (Rockwell Collins) is a player in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. The Company's products and systems are primarily focused on aviation applications. Its Government Systems business also offers products and systems for ground and shipboard applications. Rockwell Collins also provides a range of services and support to its customers through its network of service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. Rockwell Collins operates in multiple countries. Rockwell Collins serves its worldwide customer base through its Commercial Systems and Government Systems business segments. On November 24, 2008, Rockwell Collins acquired SEOS Group Limited. In April 2008, the Company completed the acquisition of Athena Technologies, Inc.

Strayer Education Recent Price $222.04 Value Range $15.89 - $23.60

Strayer Education, Inc. is a post-secondary education services corporation. The Company offers academic programs through its wholly owned subsidiary, Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. The Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 47 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, D.C., via the Internet through Strayer University Online, providing its working adult students a program offering over the Internet. It also owns Education Loan Processing, Inc. (ELP), which was organized to administer the Company's student loan portfolio. As of December 31, 2007, the Company had more than 32,087 students enrolled in its programs.
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