REFILE-PREVIEW-US education cos seen reporting strong enrollment

miércoles 22 de octubre de 2008 21:33 CEST

 (Corrects to add U.S. in the headline)
 * Analysts see strong quarter for education cos
 * Expect higher quarterly enrollments
 * Qtr will expose impact of internal lending
 By Amulya Nagaraj
 BANGALORE, Oct 22 (Reuters) - For-profit education
providers are expected to see a rise in quarterly enrollments
as a weak job market drives students back to school, even as
concerns about the credit crisis squeezing student loan
programs linger.
 U.S. education companies are poised to gain from the weak
job market as increasing number of adult students enter the
education system seeking to improve their current job situation
or to change careers.
 Growth in enrollment helps drive margin gains and boost
earnings for the companies.
 "We believe the for-profits will post healthy enrollment
and start data as the weak job market is driving many to school
to re-tool and make themselves more marketable," Merrill Lynch
analyst Sara Gubins wrote in a note to clients last week.
 However, uncertainty in the financial markets is forcing
wary loan providers to exit the student loan market, creating
concerns about the availability of sufficient loans in the
 "Student lending is the key overhang; federal loans are
available while the private loan market remains challenged,"
analyst Gubins said.
 The U.S. government's move to temporarily inject liquidity
into the secondary market for student loans, which had seized
up after investors were spooked by the subprime mortgage
crisis, has partly assuaged worries.
 The legislation has reduced education providers' exposure
to the private lending market, while allowing more students to
have access to loans.
 "Despite concerns regarding the funding environment, we
expect little, if any, adverse impact on third-quarter
enrollment trends for most for-profit providers," BMO Capital
Markets analyst Jeffrey Silber said in a note earlier this
 The analyst estimates that enrollments increased for most
companies at low- to mid-double-digit rates in the quarter.
 The Standard & Poor's education services index .GSPEDUS
has fallen 15 percent so far this year, largely on investor
concerns that enrollment growth might be soft amid the credit
 ITT Educational Services Inc ESI.N will kick off earnings
season for the post-secondary education industry group when it
reports results on Thursday.
 Companies, such as Corinthian Colleges Inc COCO.O and
Lincoln Educational Services Corp (LINC.O: Cotización) with relatively
inexpensive non-degreed and shorter programs that have limited
funding issues, are expected to benefit the most from the slow
economy, Silber said.
 However, many students are unable to access loans, despite
being academically qualified for programs. Some of the
companies have filled this void through their internal lending
 This quarter's earnings will determine how much the
companies' balance sheets are affected by internal lending, a
rise in which could lead to an increase in allowance for bad
debt and hurt free cash flow.
 Corinthian is highly exposed to the private lending crunch
and has raised its internal lending program, but demand for
most of its programs is increasing and will likely continue to
do so in the sluggish economy, Silber said. He expects earnings
growth to continue to be solid.
 "While it will have an impact on margins in the short term,
it is the right decision to fund these students internally,"
Barrington analyst Alexander Paris, Jr. said, adding that the
fall term is the most significant term for post-secondary
 Apollo Group Inc APOL.O, the operator of University of
Phoenix, is expected to have a growth in enrollments in Axia,
which offers online programs and had reported a higher rate of
dropouts earlier this year.
 Despite the Axia program dropouts, UBS analyst Andrew Fones
said he expects the company to have a 10 percent to 12 percent
revenue growth over the next five years.
 "While growth is likely to slow a bit as growth in Axia
slows, we still expect the company to grow in line with most of
its peers," analyst Silber said.
 ITT Educational, a provider of post-secondary degree
programs and which previously had the largest exposure to
private lending among education providers, recently raised its
2008 earnings forecast to $4.65 to $4.75 a share.
 "The increase in expectations is directly related to the
recent passage of legislation that increased federal student
loan limits," Paris said.
 Analysts also see DeVry Inc DV.N, a provider of
associate, bachelor and master degree programs, posting strong
growth in enrollment, but expect margin expansion to slow due
to higher expenses as it invests in future growth.
 BMO's Silber said the company's margins can continue to
rise after an "investment year" in 2009, though it might not be
the sort seen in recent years. COMPANY NAME               
                       EPS pre-ex*   Revenue    Reporting
date Apollo Group Inc            $0.67       $801.7 mln    Oct
28 DeVry Inc                   $0.44       $294.5 mln    Oct 23
ITT Education Corp          $1.17       $251.0 mln    Oct 23
Strayer Education (STRA.O: Cotización)  $0.81       $87.1 mln     Oct 30
Corinthian Corp             $0.07       $286.4 mln    Nov 5
Lincoln Educational         $0.21       $96.2 mln     Nov 5
 #According to Reuters Estimates
 *Per-share view
 (Reporting by Amulya Nagaraj in Bangalore; Editing by Deepak