For-Profit Education Stocks Slide Even As Enrollment Gains

For-Profit Education Stocks Slide Even As Enrollment Gains

By Caitlin Nish
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of for-profit education companies tumbled Friday even as quarterly results have shown enrollment continues to be strong.

Educators have seen earnings soar during the recession as high unemployment has pushed people to seek new skills and education. DeVry Inc. (DV) late Thursday said its fiscal third-quarter profit surged 60% on a 26% rise in total student enrollment, while ITT Educational Services Inc.'s (ESI) first-quarter profit rose by nearly half as total enrollment climbed 29%. But investors are wary about growth slowing as employment numbers improve.

Shares in the sector were also lower Thursday on a third-party study released by the Career College Association showing for-profit schools would be hit hard by the "gainful employment" recommendation that's part of proposed regulatory reform. Education stocks have been volatile over the past several months as the federal government continues to discuss new regulations for the higher education industry.

ITT's shares were recently down 1.7% to $110.83, while DeVry's were off 7.4% to $68.78.

As for the latest quarterly results, Signal Hill analysts said in a note, "We could not have scripted a better quarter for ITT. But signs of the advancing deceleration are creeping in as well."

The firm added that it was encouraged by ITT management's candid acknowledgement of the pressure it will face from an improving job market and its belief that it can achieve a "soft landing, decelerating gradually to high single-digit enrollment growth."

While noting that DeVry had a "fantastic" third-quarter, Wedbush said in a note Friday that the stock is likely trading lower due to execution snafus but more importantly, comments about the negative impact of an improving economy.

Also pressured were Corinthian Colleges Inc. (COCO), down 5% to $17.79, and Apollo Group Inc. (APOL), 2.9% lower at $62.98. Career Education Corp. (CECO) was off 2.2% to $34.13.

Still, Wedbush added that the key near-term driver for DeVry's stock "remains the outcome of the regulatory process."

The U.S. Department of Education is working on a "gainful employment" measure to make schools more accountable for graduating students with high debt-to-income ratios.

The study released by Career College Association said the proposal would displace hundreds of thousands of students as their programs close and could block more than 5 million students from the schools by 2020.

The department is expected to release a version of the proposals for public comment by mid-June.

-By Caitlin Nish, Dow Jones Newswires; 212-416-2076; caitlin.nish@dowjones.com