Education stocks
Bear Stearns---Childe, Jennifer---Analyst
>> cnn, fox news and msnbc are winning viewers and advertising from their increased coverage of the u.s. Presidential election campaigns has improved. The three largest cable networks more than doubled ratings for coverage of the democratic convention in july. Broadcast networks abc, cbs and nbc showed only three hours of the four-day convention, the same as this week’s republican coverage which showed three hours on the network. They lost 18 1/2% of their viewers. But the cable networks will also likely attract 20% of the $600 million spent on political ads this year. Well, corinthian college shares rose and, boy, did they rise, after the company said fourth quarter earnings met expectations and the company maintained its forecast for the current quarter. Some investors had been Concerned that corinthian would lower its forecast amid investigations of its records. To talk about corinthian and other education stocks we now bring in bear stearns analyst jennifer child who joins me from the company’s relatively empty trading floor there. Jennifer, thanks for being on the program. 23% in one session is the move today for corinthian colleges. Why?
>> bob, i think it was mostly a relief rally. There wasn’t anything Particularly new in the release relative to what we expected. The company had warned investors on august 2 that it was going to miss expectations for the fourth quarter and that day the stock got cut virtually in half. So i think the investors have been so skittish on the group in general that when we saw no new negative news that things were largely as they appeared, there was a relief rally.
>> now, tell us how corinthian fits in against some of its competitors, i.t.t., career education, etcetera. What is the competitive Landscape like for corinthians?
>> a good question. They’re all a little bit different. Corinthian is more after vocational school operator, about 55% of its students are enrolled in allied health care programs. That means medical assisting, massage therapy, dental assisting. Another 25% or so in auto repair, motorcycle repair. Then the balance are in more traditional two-year, four-year schools. It’s―each company is slightly different. Apollo tends o focus on working adult students getting their bachelors and masters degrees. I.t.t. Focuses on technical programs. Career education on cull nareir Culinary, business design, a number of different areas.
>> many of the companies have had issues with regard to their governance. Corinthian, also career education and i.t.t. All facing inquiries by u.s. Officials amid allegations of fraud, etcetera. Why does this one group seem to have so much trouble with at least investigations of inappropriate conduct?
>> well, it’s almost like health care in a sense but the government makes it very, very easy to defraud it in the form of title 4 funding. Title 4 is the source of most of these companies’ revenues. Title four being student loans, grants, etcetera. And with companies so large with decentralized operations it’s easy for some rogue employees to take advantage of the system. The lawsuits are all slightly different but they tend to relate to not only title four improprietiesies but misleading potential students about potential salaries, job opportunities, the ability to transfer credits, those sorts of things.
>> well, in particular, if you look at the earnings list on corinthian colleges for the last several quarters, last several years, it’s quite impressive. Better than 20% earnings growth for i believe here more than 16 quarters better than 20% earnings until this most recent quarter and the forecast for the current quarter. The current quarter was third and the previous quarter was 13 and the current quarter was minus 11%. What happened to the string of 16 quarters of better than 20% earnings growth for corinthian?
>> right. Well, i think growing pains sums it up. The company opened 10 new campuses this year, branch campuses. It was also absorbing a very, very large acquisition that it made last year. The company tends to acquire underperforming assets, underperforming groups of schools and turn some around through improved marketing . And better management. So i think it’s just bit off a Little bit more than it could Chew this year.
>> well, if i can just Interrupt you, we just showed the stock has lost half its value year to date and if investors hear news of acquisitions and they think it makes sense they don’t take half of the price―half the value out of a stock. There must have been a problem.
>> right. The integration of these Acquisitions and opening up new campuses too fast. They didn’t get the new Enrollment they were expecting and they had all these fixed costs associated with the 10 new campuses. Bears would argue they are facing competitive headwinds and counter cyclicality meaning students prefer not to enroll in health care programs in this market . We think those concerns are exaggerated and the company isn’t anymore susceptible to this than other companies but i thought i’d throw it out there. That is what some of the bears think.
>> are the stocks beter in a good economy or a bad eek sni
>> historically they’ve been beter in a bad economy but they shouldn’t be dramatically worse in an improving economy because students, people are looking to improve their lives by furthering their education.
>> all right. Thanks to bear stearns analyst jennifer childe for her remarks on the education stocks.
>> thank you.
>> when we come back after the break less than a month after hurricane charley hit florida frances is poised to strike. We’ll take a look at the likely impact on insurance companies.
