
Corinthian Misses, Bridgepoint Beats
NEW YORK (
) --
Corinthian Colleges
(COCO)
and
Bridgepoint Education
(BPI) - Get Report
offered up their latest earnings announcements Tuesday, with the former coming up short of expectations while the latter beat Wall Street's predictions.
The for-profit education sector has been garnering investor attention as the industry absorbs newly proposed regulations aimed at protecting students. The most controversial of the rules, what is known as the "gainful employment" rule, has yet to be published, but is poised to add further pressure to the industry's booming earnings growth.
|
>>School Stocks Gain on New Regulations
The
new rules, which go into effect in the middle of 2011, cover everything from restricting incentive-based recruiting practices, the need for new job-training courses and taking action against schools which fail to advertise honestly to requiring schools to notify students of graduation and job placement rates.
Institutions will also be required to limit student enrollment to those who have high school diplomas or can readily demonstrate their readiness for university-level education.
For-profit schools traded sharply lower over the summer when the U.S. government proposed regulations that were seen as hurting the industry's booming earnings growth. The Obama administration argued that for-profit schools like
Apollo Group
(APOL)
,
Everest colleges parent Corinthian,
Strayer Education
(STRA) - Get Report
and a number of their peers saddle their students with debt yet leave them unequipped for the job market and a means with which to repay the hefty loans.
>>School Stocks Fall on Enrollment Outlook
"We believe that the company needs a Republican victory in House and Senate for political leverage for legislative relief," noted UBS analyst Ariel Sokol.
Dennis Cariello, former Deputy General Counsel for Postsecondary Education & Regulatory Services and current Chair of Regulatory Compliance for the Education Group at law firm DLA Piper, said that if Republicans take the House of Representatives in Tuesday's mid-term election, which seems more and more likely in his view, he expects a fair amount of oversight to be done and a delay in enacting new regulations, creating leverage for for-profit institutions. If the education department is able to instate the rules prior to Jan. 5, the gainful employment rule will go into effect, and oversight will follow.
A number of for-profit education providers -- including
DeVry
(DV)
,
Capella Education
(CPLA) - Get Report
,
ITT Educational Services
(ESI) - Get Report
,
Apollo Group and
Corinthian Colleges -- have warned of declining student enrollment in recent weeks, in anticipation of the new, more restrictive regulations.
>>Apollo Outlook Weighs on School Stocks
Corinthian Colleges' Earnings
Corinthian posted weaker-than-expected earnings of $33.1 million, or 38 cents per share, compared with year-earlier earnings of $32.9 million, or 37 cents per share. Analysts had been looking for a profit of $35.5 million, or 39 cents per share.
Revenue jumped 29.1% to $501.7 million, topping estimates for $494.1 million.
Corinthian said Tuesday it is working to "help improve student outcomes, reduce the risk profile of our student population, and ensure regulatory compliance."
Corinthian 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. "
Corinthian is also evaluating a fee hike to comply with the education department's 90:10 rule, set to take effect in 2012. The rule stipulates that no more than 90% of a for-profit education provider's revenue may be generated from Department of Education's federal student aid program.
Apollo Group warned last month it would fall out of compliance with the 90:10 rule in fiscal 2012, and said it would have to increase its tuition rates if access to federal aid is cut off, further inhibiting student enrollment.
Corinthian said 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%.
"Our new student growth in the quarter was primarily driven by implementation of new programs at existing campuses, continued growth in the online learning division, the Heald acquisition, and the expansion of our high school recruiting program," the company said.
Waller added 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."
Bridgepoint Education's Earnings
Bridgepoint booked better-than-expected profits of $36.1 million, or 61 cents per share, compared with year-earlier earnings of $22.4 million, or 37 cents per share. Results topped estimates for earnings of $31.9 million, or 53 cents per share.
Revenue grew 49.9% to $190.9 million, beating analysts' consensus call for revenue of $184.7 million.
Total student enrollment increased 40.6% year-over-year. Combined new student enrollments for the third quarter increased 23.1%.
Bridgepoint forecast current quarter student enrollment will fall as much as 7% sequentially. It forecast full-year revenue in a range between $700.3 million and $702.8 million, and net income in a range between $120.8 million and $122.3 million, or between $2.02 and $2.05 per share.
The company's guidance compares with analysts' expectations for 2010 earnings of $1.98 per share on revenue of $691.7 million.
Bridgepoint should face less of an impact from new rules because its students pay their loans back at a better rate than many of its peers.
Data released in August showed that
nearly two-thirds of for-profit colleges' students were not repaying their loans. DeVry averaged repayment rates of 40% at its universities last year. Strayer Education, like Corinthian's Everest colleges, averaged in the low 20s. The
Washington Post
's
(WPO)
Kaplan came in slightly higher at weighted average of 28%, the company said.
Repayment rates at for-profit schools were just 36% in fiscal 2009, according to research from the Institute for College Access and Success, a student-advocacy group. At private nonprofit schools the repayment rate was 56%, and at state colleges and universities the rate was 54%.
-- Written by Miriam Marcus Reimer in New York.
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