A slowdown in the economy is giving Santa Ana-based vocational school operator Corinthian Colleges Inc. a boost on Wall Street.
The company has spent more than a year rebuilding its business with better marketing and customer service to improve student retention after a number of setbacks including falling enrollment, lawsuits, government probes and a stock options grant review.
Corinthian is making nice with investors these days as the for-profit education sector is seeing enrollment gains and revenue growth.
Historically, the biggest jumps in for-profit enrollment come amid economic slowdowns, analysts say.
A challenging job market tends to spur unemployed workers to improve their skills to prepare for potential jobs, analysts say.
This is good news for Corinthian, which runs more than 100 schools in the U.S. and Canada under the Everest and Wyotech brands.
The schools offer degrees and certificates in healthcare, automotive technology, criminal justice, technology and other areas.
Vocational school operators that offer non-degree programs such as Corinthian tend to do well in poor economies because a good chunk of the people who have lost their jobs go back to school for certificates, according to analyst Jeffrey Silber of New York-based BMO Capital Markets Corp.
At least one investor is betting on Corinthian’s counter-cyclical nature.
Washington Post Co., which owns the Washington Post and operates post secondary schools through its Kaplan Higher Education unit, bought an 8.1% stake in Corinthian in February.
The stake, which is worth $60 million in shares, sparked buyout chatter on Wall Street but neither company has confirmed acquisition talks.
Corinthian’s total student population grew nearly 12% for the three months ended March 31 to 72,241 people.
Total student starts, the number of students who enroll and then show up for class, grew more than 13% to 26,546 people in that same period.
More students could translate to more revenue for Corinthian.
In late May, the company held an investor conference in Long Beach where it told analysts it expects yearly revenue to grow 10% to 12% in the next three years. Its student enrollment is projected to grow 6% to 8% in the same time frame.
Wall Street expects the company to generate $1.2 billion in yearly sales through the 12 months ending in June.
Lehman Brothers Inc. analyst Gary Bisbee in June called Corinthian’s figures “bullish,” saying he was upbeat about the company’s gains in marketing, admissions and student retention.
At the time, Corinthian’s shares traded at about $13. Bisbee raised his target price to $14, and projected an expected return of more than 12%.
In late July, Corinthian shares jumped 8% after Lehman Brothers raised its rating on the education services sector to “positive” from “neutral,” calling Corinthian and other vocational school operators “defense performers” in a challenging economy.
The investment bank upgraded Corinthian’s share price from $15 to $16.
Last week, Corinthian’s shares traded at more than $15.
Corinthian competes with a handful of vocational school operators including Illinois’ DeVry Inc.; Denver-based Alta College Inc., which runs Westwood Colleges; and Phoenix-based Apollo Group Inc., which runs University of Phoenix.
Corinthian has tried to set itself apart by offering diplomas in growing areas that are “immune” to economic swings, Chief Executive Jack Massimino said in an earlier interview.
They include healthcare, automotive repair and maintenance and criminal justice.
The company has spent the past few months focusing on its Everest schools in Canada, particularly after it sold its Canadian CDI College subsidiary for $7.4 million to Canada’s Eminata Group in December.
Student Lending
An economic slowdown may have its rewards for vocational school operators but this year’s credit crunch has put a tight squeeze on student lending, which will undoubtedly be Corinthian’s biggest challenge, Silber of BMO Capital said.
The for-profit education sector was hit hard earlier this year after Sallie Mae, part of Virginia’s SLM Corp., said it would continue funding current loans to students with risky credit histories but wouldn’t make additional loans to such students.
Corinthian said it would offer students loans through its financial aid program.
“The company is stepping in and doing whatever it takes to make sure these students get enrolled by doing its own lending, but it adds risk,” Silber said.
To offset high costs, Corinthian raised overall tuition at its schools about 3% to 4% last month.
Corinthian is emphasizing quality to help generate interest from potential students.
Last month, the company hired Richard Simpson as senior vice president and chief academic officer.
Simpson will help Corinthian set academic policy and provide guidance to school staff. Simpson previously served as interim chief academic and operations officer for Colorado State University’s Global Campus.
Appointing a chief academic officer could help boost Corinthian’s reputation, Silber said.
“A lot of people look down at the for-profit sector but they do a lot for society,” Silber said. “By hiring a chief academic officer they’re showing the quality of their education is important.”
