Corinthian Shares Retrace Steps to Pre-Plunge Level
By CHRIS CZIBORR
Santa Ana-based Corinthian Colleges Inc. has made a marked comeback on Wall Street.
The company’s shares have been on a steady climb since September and are nearly back to where they were before an Aug. 30 plunge that saw half of Corinthian’s market value wiped out in a matter of days.
As of last week, Corinthian’s shares were trading near 50, with a market value of more than $1 billion.
“The fundamentals of Corinthian were sound back then and they’re still sound,” said Dennis Beal, Cor-inthian’s chief financial officer. “The market is starting to understand that.”
Corinthian, an operator of for-profit colleges, saw its shares plunge after reporting quarterly results on Aug. 30. It wasn’t so much the numbers but rather a company warning about bad debt expense tied to a regulatory change in the way Corinthian refunds tuition to dropouts with government loans.
“The June 30 quarter was a good quarter for us,we believe the market way overreacted to a bad debt issue,” Beal said.
The warning about bad debt expense was prompted by an October change in federal financial-aid regulations regarding the amount of aid refunded to the government when a student withdraws before completing a course. The change shifted the onus of collecting loans from the government to school operators.
“The stock fell over a terrible misperception that bad debt expense associated with new student dropout rates would mean that the string of earnings increases was over,” said Gerald Odening, an analyst with JP Morgan HQ. “It took a couple of quarters for them to get through it.”
Corinthian actually has cut its bad debt expense as a share of revenue in the past two quarters. In the quarter ended Sept. 30, the first after the company’s warning, bad debt expense was 6.05% of revenue, down from 6.25% in the prior quarter. For the quarter ended Dec. 30, it was 5.93%.
“Corinthian’s management got its hand around that by giving dropout students good counseling and making sure people would go after the minor amount of debt these students incurred,” Odening said.
Corinthian brought in an outside credit manager, hired a debt team and a put a collection policy in place to offset the federal regulation changes, according to Richard Close, an analyst with At-lanta-based SunTrust Robinson Humphrey Capital Markets.
Corinthian operates 58 colleges in 20 states, including 17 in California and nine in Florida. The schools, which include Bryman College and the National Institute of Technology, offer master’s, bachelor’s and associate degrees as well as diplomas in healthcare, business, technology and other areas. The company counts nearly 29,000 students.
Last month, Corinthian announced plans to buy National School of Technology, which operates three campuses in the greater Miami area. Since 1995, Corinthian has acquired 47 campuses and is looking to make “selective” buys. As of Dec. 30, Corinthian counted $49 million in cash and investments.
“They’re continuing to execute an expansion strategy plus substantial revenue growth,” said John Prichard, portfolio manager at Newport Beach-based Knightsbridge Asset Management LLC, who’s familiar with Corinthian but isn’t an investor in the company. “They’ve had seven straight quarters of 30%-plus annual revenue growth.”
In the quarter ended Dec. 30, Corinthian saw a 34% rise in revenue to $81.6 million. Operating profits grew 39% to $14.7 million.
Corinthian’s stock got pummeled last year because the bad debt expense issue created a “fear factor,” Prichard said.
“Analysts love a stock they can count on,” he said. “Corinthian until then had done nothing wrong and exceeded expectations literally every single quarter following their (1995) IPO.”
“Their prospects still are quite good,good enrollments, excellent earnings prospects,” JP Morgan HQ’s Odening said. “We think they’ll continue to meet the consensus estimates.”
For the just-ended quarter, analysts expect Corinthian to earn 42 cents a share, up from 33 cents in the year-ago period, according to Thomson/First Call Corp. The company is expected to report results for its third quarter on April 26.
“The company has demographics on its side,” Prichard said. “The number of high school grads enrolling in post-secondary schools is growing and disparity in income between college grads and non-college grads is growing.”
