For-profit U.S. colleges attract investor interest

October 26, 2016 3:22 PM EDT
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By Sinead Carew

(Reuters) - Investors appear to be giving another look at the beleaguered for-profit education industry as shares of Strayer Education Inc (NASDAQ: STRA) and Capella Education Co (NASDAQ: CPLA) rise on improving financial results.

Shares of Strayer gained 13.9 percent after it reported quarterly results on Wednesday, and Capella shares were up 4 percent on Wednesday, on top of a 12 percent gain after it reported results on Tuesday.

The entire sector has struggled since a 2010 government crackdown revealed high student debt loads, low graduation rates and poor employability of graduates. ITT Educational Services imploded last month after the government banned it from enrolling students who receive federal aid. Corinthian Colleges abruptly closed last year amid federal and state investigations.

However, Strayer and Capella have managed to find a way to cope with regulatory constraints and differentiate themselves in the highly competitive market, according to analysts.

"Within the carnage of the sector there are companies performing well this year. For value oriented investors there's an interesting opportunity," said Piper Jaffray analyst Peter Appert.

Strayer reported third-quarter adjusted earnings per share of 27 cents, beating expectations of 22 cents. BMO Capital markets analyst Jeffrey Silber attributed the beat to a 13 percent increase in new enrollments and said this was its fastest enrollment growth since 2010.

While Capella's new enrollments weakened, Silber raised his earnings per share estimate for the company as its outlook for profit margins and revenue improved.

Both Silber and Appert cited Grand Canyon Education Inc (NASDAQ: LOPE) as another company that has been doing well despite the sector's troubles. Grand Canyon reports results on Nov. 2.

Its shares are up 4 percent year-to-date, while Strayer shares have fallen 21.7 percent and Capella shares have risen 46.7 percent.

Shares of American Public Education Inc (NASDAQ: APEI), which reports results on Nov. 7, were up 2.7 percent on Wednesday, adding to an 8 percent gain for the year. DeVry Education Groupm Inc (NYSE: DV), whose shares were up 1.8 percent on Wednesday, reports on Nov. 1.

"Positive results from two companies, two days in a row … practically a record in this industry," said Piper Jaffray's Appert. "If we see similar trends at some of the others perhaps we’ll see a pick-up in investor interest. Too soon to call a trend at this point."

(Reporting By Sinead Carew; Editing by Steve Orlofsky)



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