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The
minutes of the Fed's late January Federal Open Market Committee
(FOMC) meeting provide some grim reading. Fed members
drastically lowered their expectations for U.S. economic growth
in 2009 and 2010 and indicated a great deal of uncertainty as to
the timing and strength of any recovery.
One of the most discussed issues: U.S. unemployment. The Fed's
latest outlook is for unemployment to rise to 8.5% to 8.8% from
today's reading of 7.2%. But even that projection may prove
optimistic -- some Fed members are projecting unemployment to
peak near 10%.
That's bad news for the economy in general and for many market
sectors. But there is one sector that has historically benefited
handsomely during periods of rising unemployment.
Working-age adults face a number of risks in today's market.
Many will be laid off as companies seek to reduce their costs.
But, even those that keep their jobs face the prospect of
underemployment -- they'll take on lower-paying and less-skilled
work just to get by.
But there is an alternative -- many erstwhile job-seekers
decide the recession is a great opportunity to return to
school to learn a new trade or earn a more advanced degree.
Some decide to quit work entirely to pursue an education
while others simply attend part-time. The result: admissions
tend to spike during recessions; which is great news for
for-profit education companies.
The table below offers a list of some of the largest and
best-positioned for-profit education providers in the U.S.
And in the text that follows my staff and I profile one of
our favorite in the group.
|
Security (Symbol) |
|
Forward P/E |
Long-Term Growth |
|
Career Edu. (Nasdaq: CECO) |
$25.12 |
27.8 |
+13.0% |
|
Corinthian (Nasdaq: COCO) |
$19.27 |
18.7 |
+24.0% |
|
DeVry (NYSE: DV) |
$52.93 |
19.3 |
+23.0% |
|
ITT (NYSE: ESI) |
$113.25 |
15.6 |
+16.6% |
|
Grand Canyon (NYSE: LOPE) |
$18.81 |
39.2 |
+33.0% |
|
Capella (Nasdaq: CPLA) |
$59.28 |
20.2 |
+24.9% |
|
Apollo Group (Nasdaq: APOL) |
$77.01 |
17.6 |
+16.0% |
|
Security (Symbol) |
|
Forward P/E |
Long-Term Growth |
|
Career Edu. (Nasdaq: CECO) |
$25.12 |
27.8 |
+13.0% |
|
Corinthian (Nasdaq: COCO) |
$19.27 |
18.7 |
+24.0% |
|
DeVry (NYSE: DV) |
$52.93 |
19.3 |
+23.0% |
|
ITT (NYSE: ESI) |
$113.25 |
15.6 |
+16.6% |
|
Grand Canyon (NYSE: LOPE) |
$18.81 |
39.2 |
+33.0% |
|
Capella (Nasdaq: CPLA) |
$59.28 |
20.2 |
+24.9% |
|
Apollo Group (Nasdaq: APOL) |
$77.01 |
17.6 |
+16.0% |
|
Security (Symbol) |
Price |
Forward P/E |
|
Apollo Group
(Nasdaq: APOL) |
$72.50 |
17.6 |
|
Corinthian
Colleges (Nasdaq: COCO) |
$19.70 |
18.7 |
|
Career
Education (Nasdaq: CECO) |
$24.67 |
27.8 |
|
DeVry (NYSE:
DV) |
$51.95 |
19.3 |
|
ITT (NYSE:
ESI) |
$113.50 |
15.6 |
|
Grand Canyon
(NYSE: LOPE) |
$17.02 |
39.2 |
|
Capella (Nasdaq:
CPLA) |
$55.46 |
20.2 |
Corinthian Colleges (Nasdaq: COCO, $19.70)
COCO has over 100 campuses across the U.S. and two distinct
brand names, Everest and WyoTech. Everest offers diploma and
associate degree programs in fields like accounting,
business administration, medical assistance and paralegal.
WyoTech offers career-oriented programs in fields like
automotive, HVAC and plumbing.
Catalyst(s): The main driver of growth for COCO
short-term is the weak economy and job market driving more
students back to school. COCO could benefit from this trend
even more than most as it traditionally has focused on
cheaper and shorter-term associate and employment-related
degrees. A quick glance at quarterly results for Apollo and
other for-profit educators shows that enrollment growth for
these cheaper degrees is even faster than for bachelor's and
master's degree programs.
In addition, COCO's students are eligible for the same
student financing programs as students at any other
university. In fact, more than 85% of COCO's revenues come
from federal aid and guaranteed loans. This means that COCO
can raise prices on its courses without angering students or
slowing enrollments -- the U.S. government shelters students
from most of these increases. This also means COCO will
continue to benefit from rising government spending on
education.
Competitive Advantages: COCO's focus on degrees in
the healthcare, automotive and criminal justice fields is a
big positive as demand for workers in these industries tends
to hold up well during recessions. While other for-profits
offer programs in similar fields, COCO has an established
reputation in these markets and has a sizeable force of job
placement advisors with experience placing students in these
fields.
Valuation and Outlook: COCO suffered after the tech
bust of 2000 as demand for enrollment in its information
technology related programs dried up, impacting one of its
fastest growing segments. But the company has been turning
around its operations, focusing more intently on other
in-demand markets like healthcare and automotive.
My staff and I also like the company's decision to
consolidate its dozens of brands into two -- WyoTech and
Everest. This move should serve to cut costs. Trading at
less than 19 times forward earnings and with a long-term
growth rate of +24%, COCO is one of the cheapest for-profit
education firms around on a price-to-earnings to growth
basis.
Good Investing!
Paul Tracy
Editor
StreetAuthority Market Advisor
This is just one of the many investing ideas you will find
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Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
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Money and Banking project funded by the National Bureau of
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Paul graduated with a B.S. in
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the University of Virginia.
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