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For-Profit Education Stocks Rated By Morgan Stanley Securities Analyst; Discover His Winners And Recommendations
PhD Student at Capella University, an Accredited Online University, Receives Honors from Academy of Management

Posted: 16 Sep 2010 10:34 AM PDT

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For-Profit Education Stocks Rated By Morgan Stanley Securities Analyst; Discover His Winners And Recommendations

Posted: 16 Sep 2010 12:35 PM PDT

On Thursday September 16, 2010, 3:35 pm EDT

67 WALL STREET, New York - September 16, 2010 - The Wall Street Transcript has just published its Education Report offering a timely review of the sector to serious investors and industry executives. This Special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Regulatory Risks - Great Buying Opportunities Among Weak Stocks - Economic Recovery and Enrollment Trends

Companies include: ATA (ATAI); American Public Education (APEI); Blackboard (BBBB); Bridgepoint (BPI); Cambium (ABCD); and many more.

In the following brief excerpt from the Education Report, expert analysts discuss the outlook for the sector and for investors.

Suzanne Stein is a Securities Analyst who covers the education and analytics companies within Morgan Stanley's business services group. Previously Ms. Stein worked in equity research, covering telecom services at Goldman Sachs. She holds a dual degree in finance and communications from the Wharton School and the College of Arts and Sciences of the University of Pennsylvania, and an MBA from the University of Chicago. In 2009 Ms. Stein was named the top stock picker in specialty retailers and services in the annual Wall Street Journal "Best on the Street" survey. She was also named one of the best brokerage analysts in the consumer discretionary sector in June 2010 by Forbes.

TWST: Which companies are exposed to the biggest regulatory risk?

Ms. Stein: They are all exposed to regulatory risk. It is important to keep in mind that the for-profits serve a high-risk population; these students are generally lower-income, working adults, and there are many reasons they don't complete programs. Typically as you move down the scale towards the shorter-term programs, the quality metrics, such as cohort default rates and graduation rates, decline. I don't want to make predictions of failures. The market implies that Corinthian (COCO) is the one that is most at risk. It fails several of the tests; it is the lowest of its peers in terms of repayment rates; it also has a severe problem with cohort default rates. Management is taking steps to address these problems - restricting enrollments - but it is not clear that these problems can be corrected. From an investor's point of view, if you just look at the risk to the model and run the population decline and tuition cut through the model, you can see how the operating leverage in the model can reverse pretty quickly, and it doesn't take a lot to get that model to not work anymore.

TWST: Last year postsecondary enrollments were really high because of the recession. How are enrollments trending at this point and where are they headed? Have the regulatory fears trickled down to consumers?

Ms. Stein: There is no doubt that growth is slowing. On a percentage basis, companies are lapping huge numbers from the onset of the recession, and growth rates are now decelerating. We're seeing it more with some of these companies than others. Companies that are very countercyclical, such as those that provide short-term vocational training, are seeing the biggest slowdown. Corinthian is a good example of that, where the growth was just astronomical and it slowed pretty quickly. Some of the effect may be the industry hitting a tipping point where the economy stayed weak, unemployment was high, students weren't getting jobs. I think there is a point in time where if unemployment persists, students stop going to schools to remedy an undesirable job situation. One of the problems with the influx of students like we saw during the downturn is that the quality was lower. Also the fact that unemployment is high drives cohort default rates higher and frankly makes it hard sometimes for students, who in some cases are working adults, to stay in school. Companies are paying the price now for the explosive growth, and the biggest lesson we learned from this is to focus on quality not quantity.

TWST: You view Strayer as one of the highest-quality names in the space, yet you're still underweight on the stock. Would you elaborate on your thoughts about that company and its current valuation?

Ms. Stein: Our rating on Strayer (STRA), or for any stock in our coverage, does not necessarily reflect what we think of quality; it is more of a relative valuation call. When we put the "underweight" rating on Strayer, our view was that investors were pricing the stock as if it were not exposed to the same regulatory and legislative risk as the rest of the industry, which we do not believe is the case. I guess I took to heart what Senator Harkin said, that maybe there are no good apples. Not that I agree with this statement, but I believe this is how many individuals in Congress and the Department of Education view the sector. They are not distinguishing between Strayer and its peers, and are likely to regulate for-profits as a group, and this will create headwinds for everyone. It's not just going to create headwinds for the ones that people perceive to be lower quality. We changed the rating before the repayment rates were out simply because we felt at a 17 times 2011 p/e multiple there was more risk to the downside. The stock should not have been holding such a premium to the sector. I think there is still risk to the multiple. Repayment rates are low and even if this is a result of loan consolidation, I doubt the Department of Education is going to make material changes to the repayment formula. Also the high use of Pell Grants, which for Strayer was about 30% of students, makes me wonder if its students are that much higher quality than its peers'. Frankly, I am somewhat skeptical of the income numbers management has put out there, given it represents a small sample of Strayer's students. I think management said they had a 25% response rate, and I doubt it factors in zero-earners, which will drag down the numbers, giving these estimates an upward bias.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

For Information on subscribing to The Wall Street Transcript, please call 800/246-7673

PhD Student at Capella University, an Accredited Online University, Receives Honors from Academy of Management

Posted: 16 Sep 2010 08:22 AM PDT

Daniel Dayton, a doctoral candidate at the online university's School of Business and Technology, was recognized as a 2010 Outstanding Reviewer by the Management Education and Development division of the Academy of Management

MINNEAPOLIS--(BUSINESS WIRE)--Daniel Dayton, a PhD candidate at Capella University, an accredited online university* that has built its reputation by providing high quality online degree programs for working adults, was recognized as a 2010 Outstanding Reviewer by the Management Education and Development division of the Academy of Management. Dayton received the honor for contributing quality and insightful feedback to the scholarly articles he reviewed in 2010. The Academy of Management is the oldest and largest scholarly management association in the world for scholars dedicated to creating and disseminating knowledge about management and organizations.

"When being presented with the award, I was told that my reviews are constructive, supportive, thorough, well-researched, and philosophically deeper than the common review"

"When being presented with the award, I was told that my reviews are constructive, supportive, thorough, well-researched, and philosophically deeper than the common review," said Dayton. "This is both immensely fulfilling and humbling, as this has allowed me to participate in the process of generating knowledge with some of the scholarly giants in my field by not only listening and absorbing their wisdom, but also by contributing to their streams of thought."

Dayton, who is earning his PhD in Organization and Management, is one of the more than 38,000 students who are pursuing an online degree at Capella University (http://www.capella.edu), with 31 percent enrolled in doctoral degree programs, and 47 percent enrolled in master's degree programs.

About Capella University

Capella University is an accredited online university* that has built its reputation by providing quality online degree programs for working adults. Nearly 80 percent of Capella students are currently enrolled in master's or doctoral online degree programs in the fields of business, counseling, education, health administration, human services, information technology, nursing, psychology, public administration, public health, public safety, and social work. Capella also offers bachelor's degree programs in business, information technology, nursing, psychology, public administration, and public safety. Within those areas, Capella currently offers 137 graduate and undergraduate specializations and 15 certificate programs. More than 38,000 learners were enrolled as of June 30, 2010, from all 50 states and 52 other countries. Capella is committed to providing high-caliber academic excellence and pursuing balanced business growth. Founded in 1993, Capella University is a wholly owned subsidiary of Capella Education Company, headquartered in Minneapolis. For more information, please visit http://www.capella.edu or call 1.888.CAPELLA (227.3552).

Visit the Capella Facebook page at http://www.facebook.com/CapellaUniversity.

Follow Capella on Twitter at http://twitter.com/CapellaU.

* Capella University is accredited by The Higher Learning Commission and is a member of the North Central Association of Colleges and Schools (NCA), www.ncahlc.org.

Capella University, Capella Tower, 225 South Sixth Street, Ninth Floor, Minneapolis, MN 55402, 1.888.CAPELLA (227.3552), www.capella.edu.

Learn more about earning an online degree:

online education (http://www.capella.edu/online_education.aspx)

online degree (http://www.capella.edu)

accredited online university (http://www.capella.edu/about_capella/accreditation.aspx)

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