The Zacks Analyst Blog Highlights: Apollo Group, Washington Post, Career
Education, DeVry and ITT Educational Services
CHICAGO, Dec. 10, 2012
CHICAGO, Dec. 10, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Apollo Group Inc. (Nasdaq:APOL),
The Washington Post Company (NYSE:WPO), Career Education Corp. (Nasdaq:CECO,
DeVry Inc. (NYSE:DV) and ITT Educational Services, Inc. (NYSE:ESI).
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from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Friday's Analyst Blog:
Will For-Profit Education Survive?
The for-profit education industry has been going through trying times
recently. Industry watchers had tied its fortunes with those of Mitt Romney in
the presidential elections. Now that President Obama has won re-election,
industry baiters are sharpening their knives, anticipating a slew of
regulatory measures that will tighten federal aid and make the industry more
These are but symptoms of the deep-seated problems which have been plaguing
for-profit colleges for some time now. Among these are appreciably high levels
of student debt and falling graduation and job placement rates.
Only a few years ago, the University of Phoenix, owned by Apollo Group Inc.
(Nasdaq:APOL) and The Washington Post Company's (NYSE:WPO) Kaplan, were
gaining a substantial number of students and raking in the profits. The
situation has changed drastically with a decline in enrollments in recent
years. According to data released by The National Center for Education
Statistics, college enrollment declined by 0.2% in the fall 2011. However,
for-profit colleges saw the number of students signing up for courses falling
far more, by 2.8%.
The focus is now on rationalizing operations and cutting profits. In October
this year, Apollo said it was slashing 800 jobs and closing 25 campuses over
the year. This is an effort to cut costs by $300 million by fiscal year 2014
to combat lower profits and falling student enrollment. In November, Career
Education Corp. (Nasdaq: CECO) followed the same trend, announcing 900 job
cuts and closure of 23 campuses.
The primary reason behind this scenario is fierce competition from nonprofit
and state schools and questions about whether for profit education is actually
worth the amount it costs. Students are now closely evaluating the pros and
cons of taking up such courses which has led to stiff competition for a fast
One of the indicators of rising competition in the industry is rising ad
spends. According to search analytics firm SpyFu, the University of Phoenix
has been spending close to $400,000 per day on advertising. Washington Post's
Kaplan, DeVry Inc. (NYSE: DV) and ITT Educational Services, Inc. (NYSE: ESI)
have also significantly raised their marketing expenditure.
This leads us to the primary criticism leveled against the industry that it
has been wasting taxpayers' money. Nearly $32 billion of these funds flow into
its coffers every year and the prominent for profit colleges were counting
heavily on a Romney victory to keep the cash coming in.
As we can see from their ad spends, a large portion of this money is diverted
towards advertising. Senator Tom Harkin's report found that in 2009 22.7% of
revenue was spent towards marketing and recruitment, while only 17.2% was
spent on actual instruction.
All is not lost, and both kinds of institutions may survive. The first are the
older more conventional kind of for profit colleges owned by the likes of
DeVry Inc., which will compete harder by simultaneously increasing ad spends
and cutting costs to attract students in a fiercely competitive sector.
The second are those which will differentiate themselves on offerings and
target audiences such as Grand Canyon Education, Inc. In keeping with this
argument, both these companies currently hold a shot-term Zacks #2 rank (Buy).
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