ITT Sees New-Student Enrollment Fall

ITT Educational Services is the latest for-profit school to confirm the industry's hard reset, saying new student enrollment fell for the first time in several years last quarter.
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CARMEL, Ind. (

TheStreet

) --

ITT Educational Services

(ESI) - Get Report

said new student enrollment fell for the first time in several years.

ITT Educational Services said new student enrollment fell 3.9% to 26,664 in the recent quarter, compared with 27,738 in the year-earlier quarter. Revenue per student fell by 2.5% to $4,730. Total student enrollment increased 11.1% to 88,004.

ITT posted better-than-expected third quarter earnings of $2.82 per share, but revenue of $400.6 million came up short.

The for-profit education sector has been experiencing "a hard reset," said Herb Greenberg on

CNBC

, and ITT was the latest to confirm that trend after

Apollo Group

(APOL)

warned last week that enrollment would be down more than 40% in fiscal 2011's first and second quarters.

>>School Stocks Fall on Enrollment Outlook

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 argues that for-profit schools like Apollo,

Everest colleges parent

Corinthian Colleges

(COCO)

,

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.

The

S&P 1500 Education Index

, which tracks the industry, dove 34% from June through August, a retreat that began after the Obama administration announced June 16 that it would seek regulations aimed at stanching for-profit schools' high rate of student-loan defaults and curbing their aggressive marketing practices.

>>School Stocks: Winners & Losers

That was followed by a series of proposals to meet those objectives from the Department of Education, including one that would reduce schools' ability to make federal loans based on the rate of their students' loan defaults.

>>Corinthian Miss Drags on School Stocks

ITT shares tumbled 3% in morning trading following the release of its earnings report, though the company did maintain its 2010 earnings forecast for earnings per share in a range of $11 to $11.35. Analysts' consensus call is for earnings of $11.19 per share for the year.

Citigroup analyst James Samford recently initiated coverage of the for-profit education group, rating favorably those that focus on online education programs and negatively those more focused on more traditional school settings.

Samford's buy-rated stocks included

American Public Education

(APEI) - Get Report

,

Bridgepoint Education

(BPI) - Get Report

,

Capella Education

(CPLA) - Get Report

,

DeVry

(DV)

and

Grand Canyon Education

(LOPE) - Get Report

.

The analyst's hold-rated stocks included

Career Education

(CECO) - Get Report

, Corinthian and ITT.

He noted that the group overall is an "attractive long-term growth opportunity," with the best upside primarily in online schools. He estimates that half of the 8 million students expected to take at least one course in 2015 will do so exclusively online, compared with 40% out of 5 million in 2009.

Analysts from UBS also initiated coverage on the for-profit education group this month, according to data from

Briefing.com

.

Washington Post

(WPO)

, Grand Canyon and American Public Education were rated buy with price targets of $475, $35 and $45, respectively.

Coverage of Strayer, ITT, DeVry, Corinthian, Career Education and Apollo Group were initiated with neutral ratings.

-- Written by Miriam Marcus Reimer in New York.

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