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For-Profit Education Stocks: Winners & Losers of 2010

Corinthian Colleges

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Corinthian Colleges (COCO)

Year-to-Date Share Price Percentage Loss: -69.28%

Market Capitalization: $372 Million

Corinthian Colleges ranked among the worst-performing stocks in the for-profit education sector in 2010, underperforming not only the sector but the overall equity markets as well. The operator of Everest, WyoTech, and Heald colleges averaged student loan repayment rates in the low 20s in 2009, meaning it could lose its eligibility for federal aid for student loans. The company said in August it would limit enrollment of new students more likely to default on their loans at some of its colleges, but high-risk students accounted for almost 15% of its total student population in the prior quarter.

On Nov. 2 the Santa Ana, Calif.-based education provider posted weaker-than-expected fiscal first quarter earnings $33.1 million, or 38 cents per share, down 0.6% from year-earlier results, despite a 29.1% jump in revenue to $501.7 million.

Corinthian said it was evaluating a fee hike to comply with the education department's 90:10 rule.

Total student population was 21.7% higher in its fiscal first quarter, ended Sept. 30. On a pro forma basis, total student population increased 7.7%. Total new students increased by 11.8%. On a pro forma basis the growth was 0.5%.

Corinthian said it was working to "help improve student outcomes, reduce the risk profile of our student population, and ensure regulatory compliance." The school operator stopped enrolling ability-to-benefit students (ATB) at its Everest and WyoTech campuses "to help meet federal cohort default rate requirements," said CEO Peter Waller. "ATB students do not have a high school diploma and have higher default rates than high school graduates."

Waller said that "the lack of ATB enrollments has negatively affected growth in the Everest ground schools, created marketing inefficiencies, and pressured operating margins." The CEO said Corinthian "will experience the full impact of the ATB decision on new student enrollment beginning in the December quarter of the current fiscal year."

On Nov. 30 Corinthian Waller resigned after less than two years on the job. His sudden departure marked the second executive exit in as many months after Corinthian announced the resignation of another top executive, then president and COO Matt Ouimet.

The board tapped chairman Jack Massimino, who served as chief executive from Nov. 2004 through July 2009, to resume the role of CEO, effective immediately. Massimino will continue to serve as chairman. A replacement for Ouimet has not been named.

Analysts at Barclays cut Corinthian's price target by a dollar to $4. The firm maintained an equal weight rating on the stock. RBC's Wetenhall maintained an underperform rating and $5 price target on COCO shares.

Current quarter enrollment is expected at 101,609, compared with year-earlier enrollment of 93,152. Fiscal second quarter revenue is expected to come in at $476.3 million, up from $414 million in the fourth quarter of 2009, even as earnings per share are expected to fall 50% to 22 cents.


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