While students all over the U.S. head back to school, government regulators and investigators seem like the only ones showing up at for-profit education campuses. The for-profit education industry has been under fire for several years now for its marketing and financing programs, and the hits just keep coming.
Corinthian Colleges (COCO) is facing criminal investigations regarding its lending policies and has been shutting down campuses as part of a deal with the federal government. While some investors may be tempted to bottom-fish for survivors, others suspect that these investigations into job-placement rates, sales pitches and lending practices will continue to plague the sector.
A look at for-profit education with Portfolio Grader can help separate the bad, like COCO, from the good, which we highlight here.
Apollo Education Group (APOL)
Apollo Education Group (APOL) leads the industry in fundamentals. APOL met the new Fed guidelines much better than its competitors like COCO. The VA recently reinstated Apollo, which allows it to enroll veterans again. Passing the Fed guidelines and reviews is critical for Apollo as 90% of its revenue comes from Federal student aid and lending programs. Apollo has also been expanding outside the U.S. and recently entered the Australian and African markets to lessen its dependence on U.S. government funding sources for its students. Wall Street’s expectations for the industry are so low that Apollo has now posted four consecutive positive earnings surprises.
As Apollo fundamentals have improved, Portfolio Grader upgraded it to a “B” back in June, and APOL stock is currently a “buy.”
DeVry (DV) has used an international portfolio of universities and professional schools to stay ahead of the problems that face many others, like COCO, in for-profit education. DeVry offerings have focused on business, healthcare, technology, financial services and accounting. The DeVry medical and international programs have driven earnings growth to 22% so far this year. The Chamberlain College of Nursing at DeVry has been the standout as revenue grew 34% year-over-year in the second quarter.
Portfolio Grader noted DV’s strong fundamental improvement and upgraded DeVry stock to a “buy” in July.
While the need for quality, accessible education, especially for working adults, has never been greater, the industry has done a horrendous job of recruiting and lending. The government has cracked down hard and pushed the sector and companies like COCO to the brink of extinction. When trying to pick potential for-profit education winners, be sure to consult Portfolio Grader to select only those companies, like Apollo and DeVry, with the better fundamentals.
Louis Navellier is the editor of Blue Chip Growth.