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Why Education Management Corp. (EDMC) Stock Is Falling Today

NEW YORK (TheStreet) -- Shares of Education Management Corp. (EDMC) are falling -4.76% to $1.60 as the U.S. Department of Education threatens stricter enforcement of rules to investigate marketing and enrollment practices at for-profit colleges, which are also facing soaring student debt, an analyst from Moody's Investors Service told Bloomberg.

Education Management said last week it's in talks with lenders to resolve any issues related to its debt, Bloomberg reported.

This follows an announcement from Corinthian Colleges Inc., (COCO), owner of Everest and Heald for-profit colleges, which said last week that it will put 85 of its schools up for sale as the government limited access to federal funds. 

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TheStreet Ratings team rates EDUCATION MANAGEMENT CORP as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate EDUCATION MANAGEMENT CORP (EDMC) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Consumer Services industry. The net income has significantly decreased by 79.6% when compared to the same quarter one year ago, falling from -$260.41 million to -$467.65 million.
  • Net operating cash flow has decreased to $132.49 million or 31.36% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 71.77%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 77.51% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • EDMC, with its decline in revenue, slightly underperformed the industry average of 1.4%. Since the same quarter one year prior, revenues slightly dropped by 6.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 41.84% is the gross profit margin for EDUCATION MANAGEMENT CORP which we consider to be strong. Regardless of EDMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EDMC's net profit margin of -78.56% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: EDMC Ratings Report
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