Let’s acknowledge the fact that it’s a flagging economy, and
unfortunately there are not enough remedies to help it regain its
lost momentum. With a stubbornly fragile job market, the economy’s
outlook remains exceptionally bleak. Amid such a challenging macro
environment, the for-profit education companies are finding it
incrementally difficult to make their way out of the woods.
An X-Ray of the Situation
The waning economy combined with stringent regulatory
environment and falling enrollments are making life tougher for
education companies. These companies are now restraining from
aggressive admission practices in the midst of condemnation related
to the issue of a rise in the default rate of student loans.
Students generally flocked to the education institutions during
sluggish economic conditions to enhance their skills in the
intensely competitive job market. However, this did not bode well
for many of them, who still find themselves lurching without a job.
The current unemployment rate is hovering around 8.6%. These
students, who generally use federal loans, find no means to repay
them, and the end result is the ever-increasing rate of
defaulters.
To curb this, Department of Education proposed that an
educational program could only qualify for Title IV funds, if it
helps in achieving gainful employment, which includes the criteria
of loan repayment rate and debt-to-income ratios. The company
derives a major portion of its revenues from federal student
financial aid programs, the Title IV programs.
The education institutions are also under review due to high
student-loan default rates. The imposed regulations are weighing
upon students enrollment and the company’s profits.
The Lost Sparkle
The for-profit education companies have significantly lost their
market value in the past one-year period, ending December 27, 2011.
Capella Education Company’s (CPLA) shares had
plunged approximately 45% to $35.71 and Strayer Education
Inc.’s (STRA) shares had tumbled around 37% to $97.74.
Shares of Universal Technical Institute Inc.
(UTI) had sunk approximately 42% to $12.76 and that of
DeVry Inc. (DV) had slipped about 18% to $38.75.
However, shares of Apollo Group Inc. (APOL) had
jumped 41% to $54.53 during a span of a year.
Stock Analysis
Capella Education
Capella Education, which provides online post-secondary
education services, saw its third-quarter 2011 earnings of 66 cents
a share falling by 17.5% from the prior-year quarter. Total active
enrollment dropped 7.5% during the quarter. New enrollment plunged
36%, reflecting tough market conditions, changes with respect to
program accreditation, and stringent admissions criteria.
However, it expects re-registration of existing apprentices to
remain robust, and forecasts softer declines. It now expects total
enrollment to decline between 4% and 6%, and new enrollment to
tumble approximately 10% in the fourth quarter. The stock currently
holds Zacks #3 Rank that translates into a short-term Hold
rating.
Strayer Education
The third quarter 2011 earnings of Strayer Education, which
provides post-secondary education through traditional classroom and
online, plunged 30% to $1.20 per share from the year-ago quarter.
Total revenue dropped 8%, attributable to fall in enrollment. The
educational institute said that total enrollment for fall 2011
declined 11%.
The company informed that total campus-based students fell 10%
and online students slipped 15%. The company informed that new
student enrollment plunged 15%. In order to check the waning
revenue caused by falling enrollments, Strayer Education plans to
implement a 3% hike in tuition fees with effect from January 2012.
The stock currently holds Zacks #3 Rank that translates into a
short-term Hold rating.
Apollo Group
The fourth quarter 2011 earnings of Apollo Group, a leading
private education service provider, plunged 22.1% to $1.02 per
share. Total revenue dropped 10.9% attributable to lower
enrollments at University of Phoenix, partially offset by selective
tuition price increases and better student retention rates.
Degreed Enrollment at University of Phoenix dropped 19.1%,
primarily due to a drop of 33.5% in New Degreed Enrollment.
However, management’s initiatives to expand revenue streams through
acquisitions augur well for future operating performance. The stock
currently holds Zacks #3 Rank that translates into a short-term
‘Hold’ rating.
Universal Technical Institute
Universal Technical Institute, a leading provider of
postsecondary technical education, experienced a 17.2% decline in
fourth-quarter 2011 earnings of 24 cents. Net revenue declined 6.6%
reflecting fall in average undergraduate full-time student
enrollment, partially offset by a rise in tuition fees.
The company reported that average undergraduate full-time
enrollment dropped 11.3%, whereas student starts slipped 14.5%.
Universal Technical cautioned that average number of students for
fiscal 2012 will drop at a low-teens rate, and will consequently
result in a mid to high single-digit revenue decline. The stock
currently holds Zacks #5 Rank that translates into a short-term
Strong Sell rating.
DeVry
DeVry, one of the leading educational service providers,
registered sluggish first-quarter 2012 earnings of 83 cents a share
that declined 19.4% from the year-ago quarter. Management hinted
that deteriorating economic conditions and rising unemployment rate
have negatively impacted the results.
Moreover, the new regulations associated with the education
system have posed as a headwind. The company recently declared that
total student enrollment for fall 2011 fell 5.9% due to a 24.6%
decline in new undergraduate students’ enrollment.
New student enrollment plunged 33% at Carrington Colleges Group
and dropped 1.6% at Chamberlain College of Nursing. The stock
currently holds Zacks #5 Rank that translates into a short-term
Strong Sell rating.
Closing Comments
The economy is still in the doldrums and for-profit education
companies are facing the brunt, with falling enrollments that is
muting the profits. To counter the gloom that the student
enrollment is witnessing amid turbulent environment and regulatory
issues, the company is pushing hard to manage costs effectively,
trying means to improve marketing efficiencies and focusing on new
programs.
APOLLO GROUP (APOL): Free Stock Analysis Report
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
DEVRY INC (DV): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
UNIVL TECH INST (UTI): Free Stock Analysis Report
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