Grand Canyon Education (LOPE) shares drop after court rules against GCU

Grand Canyon Education (NASDAQ: LOPE) shares tumbled Friday after a court ruled against Grand Canyon University and in favor of the U.S. Department of Education.

Grand Canyon Education (GCE) is an educational service company formerly part of Grand Canyon University (GCU). However, GCE still supports and works closely with GCU.

The ruling states that the U.S. Department of Education acted lawfully in denying Grand Canyon University's request to be considered a nonprofit institution.

GCU has, for a while, been aiming to convert from a for-profit to a nonprofit institution.

Grand Canyon Education shares are currently down over 3% at $109.42 per share. However, the stock initially dropped to a low of $104.31.

Reacting to the news, BMO Capital Markets analyst Jeffrey Silber told investors in a note that GCU will have to adhere to certain regulations, but they believe the company will be able to comply, although the firm acknowledges the negative headline.

"Though the company has expanded, GCU still remains LOPE's largest partner by far. While this battle may not be over (GCU could appeal), there are a number of regulations (90/10, Gainful Employment), which for the most part apply to for-profit institutions. GCU has complied with these regulations in the past and we believe will continue to comply going forward. Nevertheless, this could be a negative headline affecting the stock as word gets out," Silber explained.

By Sam Boughedda

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