Education and e-Learning Stocks

[TREND1]

Here is a list of educational stocks I will follow:

 
      est 2004 eps   %up from prev year. 
 APOL     1.65       29% 
 CECO     1.43       26% 
 COCO     2.26       25% 
 EDMC     2.26       20% 
 ESI      1.45       20% 
 STRA     2.57       22% 
 UOPX     1.29       42% 
 

[bbgold]

Hi Larry
Here is an extension of your list. Sorry it is not too organized.
Company Name MarketCap($mil) P/E ProfitMargin Price/Sales ROE Sales/Share Debt/Equity EPSGrowth(5yrs)

Industry Average 1,109.47 54.08 13.73 7.13 27.21 0.07 61.16
AMCE American Claims Evaluation, Inc. 6.48 NM -56.01 5.41 -8.62 0.28 0.00 NM
APOL Apollo Group, Inc. 11,044.19 52.37 18.07 8.90 27.19 7.06 0.02 35.49
CLBRQ Caliber Learning Network, Inc. 0.00 NM NM 0.00 -807.94 1.54 23.84 NM
CECO Career Education Corp. 4,293.40 56.68 8.80 4.97 19.90 17.75 0.07 107.87
CLCXQ Computer Learning Centers 0.00 NM -7.50 0.00 -22.49 7.02 0.00 NM
CCDC Concorde Career Colleges Inc. 117.97 23.62 8.08 1.86 43.70 10.80 0.00 11.28
COCO Corinthian Colleges, Inc. 2,441.41 42.55 12.68 5.39 34.84 10.34 0.07 132.13
DV DeVry Inc. 1,900.01 29.27 9.77 2.86 17.67 9.49 0.00 21.76
EDSN Edison Schools, Inc. 88.81 NM -17.91 0.21 -33.67 8.12 0.38 NM
EDMC Education Management Corp 2,160.65 39.36* 8.79* 3.46* 15.19* 17.51* 0.01 27.72
EVCI EVCI Career Colleges Inc. 11.10 NM* 5.25* 0.54* NM* 3.87* 0.45 NM
FFSY Fortune Financial Systems 0.00 0.00 1.54 0.00 14.87 1.52 0.05 NM
FC Franklin Covey Co. 24.41 NM -22.40 0.08 -55.89 15.71 0.01 NM
HSTM HealthStream, Inc. 44.81 NM -42.67 2.60 -27.54 0.85 0.00 NM
ESI ITT Educational Services 1,852.47 38.78 9.94 3.85 58.06 10.73 0.00 21.56
KDCR KinderCare Learning Center 314.58 19.93 1.90 0.38 12.94 42.30 3.77 45.83
LTRE Learning Tree Int'l. 287.95 58.57 3.26 1.89 6.92 8.85 0.00 -2.62
GML Magic Lantern Group, Inc. 48.99 NM NM 32.88 -48.61 0.02 0.42 NM
NEWH New Horizons Worldwide 63.99 NM -26.29 0.47 -58.06 13.17 0.19 NM
NLCI Nobel Learning Communities, Inc. 34.09 NM -0.80 0.23 -3.38 22.53 1.03 25.46
POSO ProsoftTraining 8.50 NM -89.98 0.62 -149.12 0.56 0.59 NM
SEAI Stanfield Educational Alternatives 0.21 NM NM NM NM NA NM NM
STRA Strayer Education, Inc. 1,014.82 48.32 21.92 10.58 NM 8.95 0.00 13.91
SLVN Sylvan Learning Systems, Inc. 1,050.63 NM* -6.73* 1.96* -7.35* 13.07* 0.34 NM
REVU The Princeton Review, Inc 190.93 291.67* 0.74* 2.08* 0.88* 3.37* 0.09 NM
TSSTQ The Tesseract Group, Inc. 0.00 NM -37.13 0.00 -84.19 4.34 3.22 NM
TASA Touchstone Applied Sci. 3.11 15.39 1.81 0.28 4.86 4.27 1.50 1.60
UOPX University of Phoenix Online 5,186.89 85.46* 20.53* 11.99* 39.99* 5.00* 0.00 101.39
WADCQ Wade Cook Financial Corp. 0.07 NM -64.36 0.00 -248.57 2.88 NM NM
RUSS Whitney Information Network, Inc. 33.22 35.35 2.41 0.58 NM 7.03 NM 59.85

[Joe Bob]

Interesting sector. My vote for sector stinker is DV, but alas I didn't short when I had the chance at 30. The majority of their business is tech education, which must start to fall if the supply of tech workers is ever going to fall in line with demand. I think ESI is also relatively dependent on tech students; are there any others?

Also, I am wondering if ed companies will start to feel the effects of companies becoming less willing to pay for continuing education as costs keep rising and workers become more replacable.

The bullish case, from what I understand, is that online ed has much higher margins, so as more classes move online, their profits will rise significantly. Having taken several online classes myself, I view these classes as inferior to their in-person counterparts. Eventually, I think these companies may have to charge less for e-learning classes because they provide a lesser service. But that would be in a sane world, in this crazy world it may be worth more to people if they can get credit for a class while expending less effort, regardless of what they end up learning. IMHO...

[TREND1]

Wall Street Transcript
Education and e-Learning Stocks Analysis
Wednesday August 20, 9:10 am ET


67 WALL STREET, New York--August 20, 2003-- In an in-depth (8,400 words) Roundtable Forum, Gary E. Bisbee III, a Vice President and Senior Research Analyst at Lehman Brothers, Gerald Odening, a Managing Director of Jefferies and Company and Jeffrey M. Silber, a Managing Director and Research Analyst at Harris Nesbitt Gerard, examine the outlook for the sector and share specific stock recommendations. This interview excerpt is part of an in-depth Roundtable Forum from our 65-page Education and e-Learning Issue featuring in-depth interviews from six analysts and top management from eight sector firms discussing pricing trends, enrollment growth, fear of cyclicality, problems of Edison Schools, market share gains, degree programs, industry consolidation, financial assistance programs, companies with online operations, companies with international exposures, tuition price inflation, new programs in business and management, regulatory outlook, staffing issues, K-12 space, stocks to avoid, stock recommendations and more.


TWST: Gerry, what has gone on over the past year in the education space that's of import?

Mr. Odening: Most of the questions coming up about this group, which has performed superbly, have generally been about whether we are at a top in terms of valuation. My feeling is that the stock prices and multiples in the education group for postsecondary will continue to rise. This is in contrast to last year when a number of holders of the stocks were concerned that many people would be selling these stocks in 2003 when technology and more cyclical sectors began to rebound. That didn't happen, because year to date the postsecondary group is up over 60%.

The other question that comes to mind is whether the law of large numbers, although anticipated by a number of us following the industry, drive stock prices down when ultimately the reported enrollment growth metrics slow and become more reflective of a long-term sustainable level. My answer really is that I don't believe that these companies or the stocks are either countercyclical or cyclical. I believe, in terms of the growth metrics, that they are quite sustainable at these kinds of levels for at least three or four years. I'm cognizant of the fact that for a very specific metric such as online enrollments the percentage growth will have to slow down in the next year or so. In terms of bricks and mortar enrollment, I think they'll continue to do well at the current pace.

TWST: Gary, what do you see as the key drivers in this space over the next couple of years?

Mr. Bisbee: I think the drivers will continue to be similar to the drivers we've seen over the past couple of years. Due to the positive demographic backdrop, including a projected 15%-20% increase in total student enrollment over the next decade, I think you'll continue to see most of the publicly traded postsecondary companies adding somewhere between 5% and 10% new units per year. You're going to see new campuses open in addition to acquisitions. I agree with Gerry that we'll continue to see a lot of those.

On top of new schools, I think the pricing environment continues to look strong, again, due to the state and local fiscal issues that we talked about earlier. So I think we should see a continuing trend of new campuses and also active strategies to grow the existing campuses. When combined with pricing and margin expansion I think the model will be 15% student growth plus 5% pricing, which will give us 20% internal top-line growth, and with a bit of margin expansion 20%-25% earnings growth.

Big picture drivers for the industry and these stocks continue to be the demographic outlook, the state funding issues that are leading these companies to gain market share, and the online trend. As Gerry said, they've done a great job of attracting nontraditional students, or students who were not successful in the traditional school system. So I think that another driver for these stocks will continue to be the online opportunities that they have. While the growth rates probably are unsustainable at the current levels, I think that a lot of people have looked at the top line and haven't focused enough on both the profitability and capital efficiency benefits of the online business model versus the campuses. Over time, I believe that the stocks can maintain their current multiple as people realize that the business model continues to improve.

So in general I think the drivers will continue to be things that have driven growth in the past, which are good competitive positioning, gaining market share, and continuing to innovate with online and other delivery methods.

TWST: What share of the market do the for-profits have at this point, and where can it go over the next few years?

Mr. Bisbee: That's a good question. By my estimate the for-profits have about 5% market share in 2003 as a percentage of enrollment, and that number is up from about 1% in 1980. So there have been steady gains. My expectation is that 5% can grow to be 8%-10% over the next decade, if not sooner. I think that the gains will be driven by pure market share gains (mostly from the community colleges), in addition to the for-profits' ability to continue to attract nontraditional students. Today, about one in four Americans over the age of 25 has a bachelor's degree, so there are somewhere on the order of 70 million people in the US work force who don't have a bachelor's degree. While most of these people are nontraditional students, I believe that the for-profits have demonstrated that they focused on this group and can offer a more convenient solution to these people. So I think they will continue to gain market share in part by attracting this nontraditional group that can certainly benefit from postsecondary education.

TWST: Gary, what are you telling investors to do in this postsecondary space?

Mr. Bisbee: Our strategy in looking at the group over the last few quarters, and certainly over the next year, has been to focus in on the companies that will be able to exceed estimates by the largest amounts going forward. Trading at 28-30 times calendar 2004 earnings on average for the group, we're not expecting significant multiple expansions from these levels. So I think the way to make the most money in this group is to own the stocks that will have the largest upward earnings revision.

On its own, that's not enough, so I think some of the attributes we've looked for are companies that have had a strong track record of meeting and/or exceeding consensus estimates, companies that are well diversified and also companies that we think are well positioned in terms of the Internet because successful online strategies will be the largest driver of both growth and financial performance for this industry over the next several years.

Specifically to our picks, over the next 12 months, we continue to think that Career Education is a great opportunity, despite what has been a pretty tremendous 80% or 85% run year to date. We think the company is positioned to exceed estimates by as much as or more than anyone. We think it's the most diversified company in the space and we believe that the timing with their Internet business, having just turned profitable and really in a strong growth phase, will lead this stock to outperform the group over the next 18 months.

We continue to think that Apollo Group is the gold standard in this industry and that the company will continue to show strong growth. In their most recent quarter, management guided for 50% growth in their online business for 2004, which was above our expectations and I think significantly above consensus as well. I think that if they follow through with that guidance, there continues to be upside to earnings estimates. So Apollo is a company that we continue to recommend that investors own.

Lastly, I would mention Corinthian Colleges for two reasons. Corinthian is the company with the largest exposure to the healthcare industry and we believe that health care is an area that continues to show robust trends. We would also note that Corinthian is somewhat cheaper than the group average right now; they're just under 26 times earnings, with the group just over 28. Given its strong track record of faster growth and rapid profitability gains, in addition to improving cash flow trends in the last couple of years, we think the company deserves to trade at or above the group average. So I would be focusing on those three names today.

TWST: Are there other names beyond Apollo that you're recommending today, Jeffrey?

Mr. Silber: Career Education is our favorite name. Again, you've got to be opportunistic. The stock had had a great run. It has been pulling back recently, but I would echo a lot of things Gary said about the company. We've also got an outperform rating, which is our highest rating, on Corinthian for a lot of the same reasons Gary mentioned.

Another company we like is Education Management. We typically group the "consolidators" together, which are Career Education, Corinthian and Education Management. EDMC tends to be a bit more of a conservative consolidator. I don't want to say that they're a follower, but I wouldn't call them one of the more aggressive consolidators. So if you want to stay a little more conservative but like the benefits you get with a consolidator, I would probably play an EDMC as well.

This interview excerpt is part of an in-depth Roundtable Forum from our 65-page Education and e-Learning Issue featuring in-depth interviews from six analysts and top management from eight sector firms discussing pricing trends, enrollment growth, fear of cyclicality, problems of Edison Schools, market share gains, degree programs, industry consolidation, financial assistance programs, companies with online operations, companies with international exposures, tuition price inflation, new programs in business and management, regulatory outlook, staffing issues, K-12 space, stocks to avoid, stock recommendations and more. This issue is available to subscribers by telephoning 212-952-7400 x1799 or through The Wall Street Transcript .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

[TREND1]

Slower enrollment growth for Apollo?
Barron's: Shares pricey if growth wanes
By CBS.MarketWatch.com
Last Update: 1:19 PM ET Aug. 23, 2003


WASHINGTON (CBS.MW) -- Shares of Apollo Group, the parent of the University of Phoenix and the University of Phoenix online, have been on fire this year, but may begin to cool off if rapid growth in student enrollment begins to slow, according to Barron's.


Apollo (APOL: news, chart, profile) notched an all-time high of $67.30 on July 3 and remains in the 60s, up from their 2002 close of $44. The Phoenix-based firm has seen annual revenue of $1 billion and a five-year historical earnings growth rate of 38 percent, Barron's noted, but investors must wrestle with the fact that the stock price reflects optimism about future prospects at the same time enrollment growth is moderating.

At a recent price of $67.10, the firm's multiple was 42 times 2004 estimated earnings, well above Apollo's competitors. The next closest valuation in the education sector belongs to Strayer Education, selling at 47.4 times this year's earnings and 38.7 times expected 2004 earnings, Barron's said.

Apollo saw enrollment at Phoenix Online -- which accounts for around 40 percent of the firm's students and has been the main source of growth -- rise at an annual pace of 59.7 percent from the year earlier level in the fiscal third quarter, Barron's said. While strong, growth was down from 67.6 percent growth in the preceding quarter and 69.1 percent in the first quarter.

Alexander Paris Jr., an analyst at Barrington Research who has rated the stock "underperform," estimates growth in the current quarter will be 55 percent.

Apollo CEO Todd Nelson downplayed concerns, telling Barron's that growth at Phoenix Online is "really where we said it would be two years ago." He sees enrollment expanding at 50 percent for a while, but "over time, the law of large numbers will start to bring online down," but emphasizing "we don't see that happening right now."

Barron's said that the company offers a solid balance sheet and effective business plan, leaving a "very lofty valuation" as the only downside.

"They've done amazing things there, and they'll probably continue to do amazing things. They'll just be a little less amazing then they were over the past two years," Paris said.

[TREND1]

Welcome to this new board on Education and e-Learning stocks.
Recent gains in these stocks have been very good.
The question is "Will this continue and for how long"?