Barclays on U.S. Education Services: First Look at Final Gainful Employment Rules: Positive Surprise vs. Expectations
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Up: 8 | Down: 5 | New: 26
Rating Summary:
7 Buy, 17 Hold, 0 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on U.S. Education Services: First Look at Final Gainful Employment Rules: Positive Surprise vs. Expectations
Barclays analyst says, "The U.S. Department of Education (DoE) will publish the long-awaited final Gainful Employment regulations this morning. Based on a preliminary review of DoE's press release and an accompanying PowerPoint presentation that highlight the major changes in the final regulations (vs. the draft regulations published last summer), we have the following high level takeaways: The basic framework remains unchanged, with programs at for-profit schools needing to meet either a debt-income threshold or a repayment rate metric for the programs to remain eligible for Title IV funds. However, there are also many important changes that we believe will make compliance with both metrics easier to achieve, and thus we view the final rules as a positive relative to the draft regulations published last summer."
"On a negative note, the final regulations will mandate higher levels of disclosure to potential students and will have a significant administrative burden associated with achieving and maintaining compliance. We expect the industry will need to make changes (many of which have already begun) to improve the quality of student outcomes and ensure compliance. Combined with a sharp deterioration of enrollment trends in the last six months, we believe that the industry faces a 12-24 month transition period in which quality initiatives and a challenging fundamental environment combine to hurt profits."
"However, we believe that a poor outlook is already priced into the stocks, and expect the final Gainful Employment rules to be well received by investors this morning. We believe that the changes made vs. the draft regulations from last summer were more favorable than consensus expectations, which we believe can allow a revaluation higher in the stocks both today and in the future, especially when fundamental uncertainty declines at some point in the next few quarters."
"Our top picks remain DeVry (NYSE: DV) and Education Management (Nasdaq: EDMC), which we believe offer the best mix of quality outcomes, program diversity and medium-term growth prospects (considering the impact on growth prospects of both the new regulations and strengthening employment over the next few years)."
Barclays analyst says, "The U.S. Department of Education (DoE) will publish the long-awaited final Gainful Employment regulations this morning. Based on a preliminary review of DoE's press release and an accompanying PowerPoint presentation that highlight the major changes in the final regulations (vs. the draft regulations published last summer), we have the following high level takeaways: The basic framework remains unchanged, with programs at for-profit schools needing to meet either a debt-income threshold or a repayment rate metric for the programs to remain eligible for Title IV funds. However, there are also many important changes that we believe will make compliance with both metrics easier to achieve, and thus we view the final rules as a positive relative to the draft regulations published last summer."
"On a negative note, the final regulations will mandate higher levels of disclosure to potential students and will have a significant administrative burden associated with achieving and maintaining compliance. We expect the industry will need to make changes (many of which have already begun) to improve the quality of student outcomes and ensure compliance. Combined with a sharp deterioration of enrollment trends in the last six months, we believe that the industry faces a 12-24 month transition period in which quality initiatives and a challenging fundamental environment combine to hurt profits."
"However, we believe that a poor outlook is already priced into the stocks, and expect the final Gainful Employment rules to be well received by investors this morning. We believe that the changes made vs. the draft regulations from last summer were more favorable than consensus expectations, which we believe can allow a revaluation higher in the stocks both today and in the future, especially when fundamental uncertainty declines at some point in the next few quarters."
"Our top picks remain DeVry (NYSE: DV) and Education Management (Nasdaq: EDMC), which we believe offer the best mix of quality outcomes, program diversity and medium-term growth prospects (considering the impact on growth prospects of both the new regulations and strengthening employment over the next few years)."
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