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School Stocks Fall on Enrollment Outlook

Apollo Group's dismal student enrollment outlook continues to weigh on stocks in the for-profit education sector.

NEW YORK (

TheStreet

) -- Stocks in the for-profit education sector continued to suffer Friday after

Apollo Group

(APOL)

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

Shares of Apollo, Kaplan's parent

Washington Post

(WPO)

,

DeVry

(DV)

,

Career Education

(CECO) - Get Career Education Corporation Report

,

TheStreet Recommends

Education Management

(EDMC)

,

Everest colleges parent

Corinthian Colleges

(COCO) - Get Vita Coco Company, Inc. Report

and

Bridgepoint Education

(BPI) - Get Zovio, Inc. Report

all traded lower in Friday's session.

One reason for the significant decline in enrollment is Apollo's implementation of a mandatory three-week orientation, beginning Nov. 1, for all new students enrolling at University of Phoenix with fewer than 24 transfer credits.

>>Apollo Outlook Weighs on School Stocks

The program will help to counter criticisms Apollo and a number of its peers have faced claiming that for-profit schools saddle their students with debt yet leave them unequipped for the job market and a means with which to repay the hefty loans.

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

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

Analysts from Stifel Nicolaus and FBR Capital issued downgrades on Apollo shares Thursday. Stifel Nicolaus downgraded the stock to hold from buy. FBR downgraded the stock to market perform from underperform, and lowered its price target to $40, from $49.

Analysts from RBC Capital Markets reiterated a sector perform rating, but lowered their price target on Apollo to $45, from $55.

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

Samford's buy-rated stocks included

American Public Education

(APEI) - Get American Public Education, Inc. Report

, Bridgepoint,

Capella Education

(CPLA) - Get Capella Education Company Report

, DeVry and

Grand Canyon Education

(LOPE) - Get Grand Canyon Education, Inc. Report

.

The analyst's hold-rated stocks included Career Education, Corinthian and

ITT Educational

(ESI) - Get Element Solutions Inc Report

.

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 Tuesday, according to data from

Briefing.com

. Washington Post, 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.

Shares of Apollo tumbled 4.3% Friday afternoon on more than double their average trading volume. Education Management fell 3.2%, Career Education 2.8%, Bridgepoint 4%, Corinthian 0.2% and DeVry 1.3%.

ITT bucked the trend, gaining 0.9%.

-- Written by Miriam Marcus Reimer in New York.

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