Will For Profit Education Stocks Face Greater Scrutiny in 2014?

James Dennin, Kapitall: President Obama has highlighted growing student loan debt. Will this include new regulations in for profit schools?

In last night's State of the Union, President Obama reiterated his pledge to help the rapidly ballooning student debt in this country. To underscore the importance of this part of his platform, he invited a deeply indebted graduate (to the tune of $90,000) of Devry (DV), to sit in First Lady Obama's box. 

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Calls have come from various state attorneys general to investigate some of the practices of for profit colleges like Devry, many of whom derive close to 90% of their profits directly from federal student loan programs. 

And yet it doesn't seem to have had much of an effect on stock prices in the industry so far. Despite the lackluster month for the stock market, about half of the seven biggest for profit education stocks are up in 2014, with Career Education Corp (CECO) gaining almost 13%. 

Click on the interactive chart below to view data over time. 

As of now, four major for profit educators have received demands for information from a network of 12 state attorneys general, and the Federal Trade Commission has strengthened guidelines regarding how these companies are allowed to market their programs. 

While some stocks have performed well this month, and the largest educator Devry seems generally unmoved, some like Education Management Company (EDMC) (which is partially owned by Goldman Sachs [GS]) have been throttled as of late: 

Now it seems like Wall Street has cooled off somewhat on the industry. Most companies in for profit education are rated 'hold' by analysts. And yet at the same time, it also seems possible, if not likely, that for profit schools will remain part of the equation for the foreseeable future. 

That's because Obama didn't mention community college expansion in his State of the Union, although he did mention that much needs to be done to improve job training, and to help education programs partner better with employers. 

At the moment, for profit schools still have a lot of work to do if they are going to avoid the ire of government officials in the future. Though they account for around 10% of student enrollment in higher education nationwide, they are responsible for issuing 47% of student debt. 

It's hard to imagine this industry escaping further regulation until that figure is measurably improved. 

Do you think increased regulation will improve or stiffle the for profit education industry? Use the list below to begin your analysis. 

1. DeVry, Inc. ( DV): Provides educational services worldwide. Market cap at $2.34B, most recent closing price at $37.72.
 

 

2. Apollo Group Inc. ( APOL): Provides educational programs and services at the undergraduate, master's, and doctoral levels. Market cap at $3.71B, most recent closing price at $33.60.
 

 

3. Education Management Corporation ( EDMC): Provides post-secondary education in North America. Market cap at $1.07B, most recent closing price at $8.68.
 

 

4. Bridgepoint Education, Inc. ( BPI): Provides postsecondary education services. Market cap at $942.66M, most recent closing price at $17.65.
 

 

5. ITT Educational Services Inc. ( ESI): Offers postsecondary-degree programs in the U.S. that provide diplomas as well as associate's, bachelor's, and master's degrees. Market cap at $905.78M, most recent closing price at $39.60.
 

 

6. Corinthian Colleges Inc. ( COCO): Operates as a post-secondary career education company in the United States and Canada. Market cap at $133.18M, most recent closing price at $1.51.
 

 

7. Career Education Corp. ( CECO): Provides educational services primarily in the United States. Market cap at $377.40M, most recent closing price at $5.92.

 

 

( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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