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For-Profit Education Stocks: Winners & Losers of 2010

Education Management

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Education Management (EDMC)

Year-to-Date Share Price Percentage Loss: -37.12%

Market Capitalization: $1.96 Billion

Education Management was mum on the topic of newly proposed Department of Education regulations when reporting its recent quarterly results, even as industry peer Lincoln Educational Services (LINC), which reported its results earlier the same day, said it was operating on the assumption that some version of those rules will be enacted in 2011, and that it will have an impact on its profitability.

Education Management booked growth in year-over-year fiscal first quarter profits and revenue, beating expectations, but forecast current quarter results below the Street's call. Revenue came in at $666 million, up 24.6% from year-earlier revenue of $534.4 million. The sharp increase was driven primarily by a 23.1% increase in July student enrollment, the company said. Net income soared 131.2% to $36.4 million, or 25 cents per share, compared with year-earlier profits of $15.8 million, or 13 cents per share.

Total student enrollment at the start of the current quarter was 158,300 students, a 16.4% increase from a year ago. The number of students enrolled in fully online programs increased 35.7% to over 42,300 students.

Education Management said it expects net income in its 2011 fiscal second quarter, which ends this month, to be in a range between $85 million and $88 million; EBITDA, or earnings before interest, taxes, depreciation and amortization, to be in a range between $203 million and $209 million, and earnings per share in a range between 60 and 62 cents per share. Wall Street expects current quarter net profits of $86.8 million, EBITDA of $206.8 million, and EPS of 61 cents per share.

On Dec. 10 Education Management said it increased the size of its stock repurchase program by 300%, from $50 million to $150 million, and extended the term of the program to Dec. 31, 2011. Education Management launched the stock repurchase program on June 11 and has repurchased 4.2 million shares to date at a cost of $50 million, the company reported.

On Dec. 21 the company said its subsidiary, Stauzenberger College Education, which owns Brown Mackie College locations in Louisville and Hopkinsville, Ky., as well as another location in Ohio, received a subpoena from the Office of Consumer Protection of the Attorney General of the Commonwealth of Kentucky.

The subpoena requested documents and details for Stauzenberger's operations between Jan. 1, 2008 through the end of the 2010 calendar year. The filing said the Kentucky Attorney General's previously announced investigation of for-profit colleges' business practices included issuing subpoenas to six other schools in Kentucky.

Education Management said it intends to cooperate with the investigation.

Education Management's Brown Mackie College in Fort Mitchell, Ky. is not owned by Strauzenberger, the company said in a filing with the Securities and Exchange Commission.


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