A slowing economy could be a good thing for Santa Ana’s Corinthian Colleges Inc.
The vocational colleges operator has been in a two-year slump with falling enrollment, lower profits and setbacks in a program designed to get more students to its schools.
Since 2004, there have been lawsuits from students and shareholders, government probes in California and Florida and a stock option grant review.
In March, the California Public Employees’ Retirement System cited Corinthian as one of 11 companies with poor stock performance and corporate governance issues.
From spring to fall last year, the company’s shares lost a quarter of their value. They regained ground late last year and are up about 4% this year with a recent market value of $1.2 billion.
At least one analyst believes the tide is turning for Corinthian, which runs more than 100 schools here and in Canada offering degrees and certificates in healthcare, automotive, criminal justice, technology and other areas.
The company has a “countercyclical” nature that could spur gains as the economy cools this year, said Citigroup analyst Paul Beland.
Earlier this month, Beland upped his rating on Corinthian to “buy” from “hold.”
Historically, the biggest jumps in for-profit enrollment come amid economic slowdowns, he said. The biggest drops followed strong economic growth, as seen in the past few years.
Economic slowdowns and a challenging job market tend to spur unemployed workers to improve their skills or prepare for potential jobs, according to Beland.
Corinthian “is the most countercyclical educational services company,” he said. The company’s “lower-level healthcare programs are ripe for the unemployed.”
Half of Corinthian’s diploma programs are in healthcare, an area Beland said is less affected by economic downturns.
A slowdown in construction jobs could benefit Corinthian’s WyoTech schools, an automotive trade school Corinthian got when it bought Wyoming Technical Institute for $85 million in 2002. WyoTech now makes up 10% of the company’s 65,430 students.
“With the continued decline of new home sales, we should continue to see increasing declines in the number of construction jobs as available work dwindles,” he said. “This could push some workers into other fields like automotive diagnosis and repair.”
Beland isn’t the only bull.
Last week, San Francisco-based Wells Fargo & Co. said it doubled its stake in Corinthian to 10.6%. The company owns 9.2 million shares of Corinthian, according to a filing with the Securities and Exchange Commission.
Corinthian has stabilized falling enrollment in the past two years and is looking to add students, Chief Executive Jack Massimino said.
The company is gearing advertising,a staple of daytime TV,to a new generation of students. It’s cutting the brand names of its schools from 28 to six. Corinthian also is offering job placement services earlier in student programs, Massimino said.
Enrollment and student aid programs also have been fixed, he said. Changes should start playing out next year, according to Massimino.
The problems were acute at WyoTech, with campuses in California, Florida, Massa-chusetts, Pennsylvania and Wyoming.
In the December quarter, Corinthian saw its second straight drop in quarterly profits as an effort to rework enrollment and tuition financing took its toll.
Net income fell 75% from a year earlier to $2.6 million for the quarter. In the September quarter, profits fell 80% from a year earlier.
Results for the March quarter are due next month.
Wall Street expects a sequential rebound in profits to about $13 million, though down slightly from a year earlier. Revenue is seen coming in at $253 million, up about 1% from a year earlier.
WyoTech campuses in Wyoming, Pennsyl-vania and Sacramento have seen historic levels of “show rates,” the percentage of students who enroll and then show up for class, Massimino said.
The company’s Operation Ignite effort, started last summer to standardize student enrollment and improve financial aid, is likely to pay off, analyst Beland said.
“The turnaround is just a matter of picking low hanging fruit,” Beland said.
“We remain bullish about the long-term prospects for WyoTech,” Massimino said. “The market opportunity, as measured by the projected job growth for automotive technicians, is large and growing.”
A new 40-person student finance office in Phoenix is designed to improve WyoTech’s student loan process, he said.
Corinthian is looking to market research to better guide the company, according to Massimino.
“Overall, we’ve become more data-driven as an organization,” he said.
Corinthian competes with Illinois’ DeVry Inc., Denver-based Westwood Colleges and Phoenix-based Apollo Group Inc., which runs University of Phoenix.
The company is looking to set itself apart by offering diplomas in growing areas that are “immune” to economic swings, Massimino said. They include healthcare, automotive repair and maintenance and criminal justice.
After going public in 1999, Corinthian grew early in the decade by acquiring other school operators. Cofounder David Moore led the expansion as chief executive until 2004, when he stepped backed as chairman in favor of Massimino.
Moore stepped down as chairman late last year and still is a director.
Corinthian’s improving prospects could make the company attractive as an acquisition by private equity firms, analyst Beland said.
“Our recent visit with management suggested the company is open to a deal if it is in the best interests of shareholders,” he said.
But a deal isn’t likely before the company’s enrollment issues are solidly behind it, Beland said.
Massimino wouldn’t say whether Corinthian is considering a buyout or if it has received offers from private equity groups or competing companies.
“Our board and executive management have a fiduciary responsibility to consider any offer which would substantially increase shareholder value,” he said. “However, we believe we are already on a path that will create value for shareholders over the long term.”
Private equity groups have taken a liking to education companies.
Newport Beach-based ClearLight Partners LLC invested in Mission Viejo-based U.S. Education Corp. in 2002 when it acquired Silicon Valley College, a healthcare and technology school in the San Francisco Bay area.
In 2004, Washington, D.C.-based Arlington Capital Partners bought the California Institute of Technology.
Last year, Rhode Island-based Providence Equity Partners Inc. acquired Education Management Corp. of Pittsburgh along with Goldman Sachs Capital Partners.
