For-Profit Education Stocks: Which Will Outperform in 2011?

(2011 education stocks poll updated with Strayer Education's warning of a 20% drop in student enrollment.)

NEW YORK ( TheStreet) -- Stocks in the for-profit education sector fell 24%, on average, in 2010, even as the S&P 500 rebounded around 12.8%.

Top industry players like Corinthian Colleges ( COCO), Apollo Group ( APOL) and Strayer Education ( STRA) offered dismal 2010 returns in the negative high double-digit percentage range.

Thus, investors should remain cautious as 2011 gets underway with enrollment growth visibility cloudy, at best, along with the overhang of regulatory uncertainty following the Obama administration's recently proposed rules that 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.


Strayer Education was the latest education stock to report of declining student enrollment.

Strayer said late Friday that new student enrollments across its campus and online education system decreased by 20% for the 2011 winter term, which began Jan. 3, even as continuing student enrollments increased by 10%.

That led Piper Jaffray analyst Peter P. Appert to slash his price target on Strayer Education shares by $17 to $119, maintaining a neutral rating on the stock.

Strayer executives said negative publicity and uncertainty regarding proposed regulations surrounding the for-profit education sector in recent months led to the student enrollment decline.

The company's statement echoed cautionary statements on student enrollment from school stock peers such as Corinthian Colleges, Capella Education ( CPLA) and ITT Educational Services ( ESI).


Education-providing 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. Schools must also comply with what is called the 90:10 rule in fiscal 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.

Federal aid to for-profit education providers came to nearly $150 billion in the last academic year.

The highly controversial "gainful employment" rule, would sharply limit for-profit schools' access to federal aid and could be finalized as early as this month.

"The educational services sector lacks a hard catalyst other than the Department of Education's widely anticipated publication in 2011's first quarter of the final version of gainful employment," noted RBC Capital Markets analyst Robert. C. Wetenhall.

In other words, enrollment growth has been slowing across the for-profit education sector, and regulatory uncertainty persists, so "it's tough to get excited about the outlook." Wetenhall told TheStreet the sector is in need of "something dramatically material to provide torque to the stocks," adding that "with the absence of a hard catalyst, we tend to focus on what can go wrong rather than right."

For-profit school stocks faced harsh criticism in 2010 about colleges' staggeringly low graduation rates and high student loan default rates . Future enrollment figures were called into question, schools were accused of failing to adequately prepare students for profitable careers yet leave them saddled with heavy debt and federally proposed restrictions on the industry's business operations cast a shadow no bull market could fully offset.

A few sector players -- such as Bridgepoint Education ( BPI) and American Public Education ( APEI) -- did manage to offer investors positive returns in 2010, even if some failed to beat the S&P 500.

With all this in mind, we'd like to know which for-profit postsecondary education provider you think will outperform in 2011. Click through our roundup of 2010's winners and losers of the for-profit education sector . Then take our poll and see what readers of TheStreet think.

Which for-profit education stock will outperform in 2011?

Apollo Group
Washington Post
DeVry
Strayer Education
ITT Educational Services
Career Education
Education Management
Capella Education
Grand Canyon Education
Bridgepoint Education
American Public Education
Corinthian Colleges

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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