Zeev's Turnips Patch-No Politics (ZEEV)

[Bird of Prey]

I was referring to the DJ articles comments (highlighted below).

It's a terrible thing to be "spent"! :)

I asked because I thought I (and others) might benefit from specific commentary on this sector.


=UPDATE: Corinthian Down After Warning On Earnings>COCO

Dow Jones Equity News, Monday, August 02, 2004 at 14:18


(Updates throughout.)

By Erik Ahlberg Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)--Shares of Corinthian Colleges Inc. (COCO) sunk Monday after the for-profit education company said its revenue and earnings for the recently ended fiscal fourth quarter and the year would fall below its previous forecasts.

The company blamed the shortfall on higher costs related to marketing and advertising, and negative publicity surrounding a series of lawsuits that have dogged the company in recent months."Strong growth, unfortunately, sometimes brings challenges, and there were several during the past quarter that we now believe caused our revenue to fall short of our expectations and earlier guidance,"said David Moore, Corinthian's chief executive.

Investors gave the stock a failing grade. Corinthian College's shares recently traded at $10.59, off $8.13, or 43.4%, on heavy volume.

Corinthian's disclosure, made via press release early Monday, also dragged down the shares of others in the sector, which has been beaten down in recent months by a steady flow of bad news.

Education Management Corp. (EDMC) shares were off 14.9%, University of Phoenix Online (UOPX) dropped 14.9%, DeVry Inc. (DV) declined 13.4%, Career Education Corp. (CECO) were off 13.3%, Apollo Group Inc. (APOL) fell 12.2%, Strayer Education Inc. (STRA) were down 10.6% and ITT Educational Services Inc. (ESI) were off 6%.

Analysts promptly downgraded Corinthian Colleges' shares. J.P Morgan, Harris Nesbitt, Bear Stearns and Merrill Lynch were among the films lowering their opinions on the stock."It has become clear that the company has not been able to effectively manage costs as it struggles to implement an organic growth strategy and integrate acquisitions,"said J.P. Morgan analyst Bradley Safalow."We are completely shocked by the magnitude by which the company has lowered guidance."Corinthian Colleges, of Santa Ana, Calif., said it expects to report fiscal fourth-quarter earnings per share of 19 to 20 cents and full-year earnings between 86 to 87 cents a share. Analysts polled by Thomson First Call had forecast the company would earn 28 cents a share for the fourth quarter and 97 cents a share for the year, which ended June 30.

Corinthian Colleges also said it expects to report earnings for the fiscal first quarter of 2005 of 17 cents to 19 cents a share and said it doesn't expect to achieve its previously targeted earnings per share for fiscal 2005.

Analysts, on average, projected the company would earn 27 cents in the first quarter and $1.25 a share for 2005.

Given the good visibility associated with the for-profit education model, Corinthian Colleges' earnings shortfall is unprecedented and reflects a lack of internal controls for the company, J.P. Morgan's Safalow said.

He also said the company's decision to withhold specific guidance for 2005"creates additional uncertainty about management's ability to effectively monitor costs and execute on a growth strategy."Safalow doesn't own any Corinthian Colleges shares, though J.P. Morgan has conducted investment-banking business with the company within the past 12 months.

Legal issues add another layer. A suit brought earlier this year by a former student of Corinthian's Florida Metropolitan University alleges that the company concealed that the school wasn't accredited by a certain regional accrediting body. The suit, which was widely covered by local press, also alleges that FMU credits can't be transferred to other schools.

In June, officials from the U.S. Department of Education reportedly uncovered problems with federal loan requests made by the company's Bryman College, located in San Jose. As a result of the findings, the agency revoked the school's ability to receive advance payments on its student loans, which is standard practice in the industry.

There also have been a number of class-action lawsuits filed against the company in recent months. Just last week, a law firm in Baltimore commenced a shareholder suit alleging the company and its executives"violated federal securities laws by issuing a series of materially false and misleading statements to the market"from August 2003 through June 2004.

Corinthian said in its press release Monday that it voluntarily met with personnel from the California Attorney General's Office and provided requested information regarding three previously settled lawsuits. The company also offered additional materials regarding its policies and programs designed to keep students happy and ensure regulatory compliance.

J.P Morgan's Safalow said that disclosure"increases the regulatory concerns surrounding the space."While the industry growth rate remains strong, Corinthian College's disclosure show's that the growth"is slowing on the margin,"said analyst Lauren Rich Fine of Merrill Lynch. The firm downgraded the company to neutral from buy.

However, investors shouldn't lose sight of the fact that the industry has solid long-term prospects given an increasing number of students graduating from high school, wide salary differences by educational level and an increasing move toward a services-based economy."We do not believe a case can be made to put new money into the stock, yet we continue to be believers in the services they offer and as a sector as a whole,"Fine said.

-By Erik Ahlberg, Dow Jones Newswires; 312-750-4141; [e-mail]

(END) Dow Jones Newswires