Strayer Tumbles on Enrollment Outlook

ARLINGTON, Va. ( TheStreet) -- Strayer Education ( STRA) shares tumbled nearly 25% in the first minutes of trading Monday after the postsecondary education company warned of slower student enrollment growth.

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%.

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

The analyst noted that "Strayer's much weaker than expected fourth-quarter enrollment growth likely portends similar sharp declines in enrollment growth from most of the postsecondary education companies over the next several quarters. We expect deteriorating fundamentals to keep the postsecondary group in a near-term trading range, even in the context of easing regulatory concerns. We see no rush to own STRA shares or for broad industry exposure."


The operator of Strayer University saw its shares shed 24.3% to $116.05 Monday morning.

That led much of the sector lower as well. Everest Colleges parent Corinthian Colleges ( COCO) saw its shares tumble 11.2% to $4.69 while DeVry ( DV) lost 13.4% to $41.17. Apollo Group ( APOL), which is due to report a 12.3% drop in fiscal-first quarter earnings to $1.35 per share after the closing bell Monday, was lower by 5.9% to $35.76.

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.

In its recent quarter, Strayer said new student enrollments fell 2%, compared with growth of 20% in the year-earlier period. Strayer complained at the time of the sector's negative publicity and said it would trim expansion plans and institute a 5% tuition increase. The fee hike became effective Jan. 1.

Strayer said 2011 EPS could drop to a range of $7.50 to $7.70 if student enrollment falls 5%. If student enrollment rises 13%, EPS could come in at $11.30 to $11.50 per share, a forecast it laid out in its October earnings report.

A number of schools in the sector have offered similar cautionary statements about falling student enrollment growth.

On Oct. 14 Apollo warned that enrollment would be down more than 40% in fiscal 2011's first and second quarters. Apollo withdrew its outlook and warned that it would fall out of compliance with the so-called 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 the Department of Education's federal student aid program. Apollo would have to increase its tuition rates if access to federal aid is cut off, further inhibiting student enrollment.

The warning led to a sharp sell-off in education stocks and was echoed by school stock peers such as Corinthian Colleges, Capella Education ( CPLA) and ITT Educational Services ( ESI).

The sector selloff that week was the latest blow to education stocks 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.

Stocks in the for-profit education sector had a rough 2010. Regulatory uncertainty weighed on the industry, criticism about colleges' graduation rates and student loan repayment rates abounded, 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.

As education companies face stricter rules, many have been adjusting their operating practices, limiting enrollment to more qualified students and those more likely to be able to repay loans.

"Things seem to be decelerating for them faster than expected," said Sterne Agee & Leach analyst Arvind Bhatia. The analyst also said macroeconomic trends have driven the decline in student starts.

-- Written by Miriam Marcus Reimer in New York.

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

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