The for-profit education sector has seen its fair share of volatility lately. The sector seems to have settled down, but the current trend in Washington D.C. is still viewed as a threat.  DeVry Inc. (NYSE: DV) is probably going to be one of the least affected under the most recent proposals.  Apollo Group Inc. (NASDAQ: APOL) is likely not immune to any sector woes and it has had its own issues this year.  Corinthian Colleges Inc. (NASDAQ: COCO), Career Education Corp. (NASDAQ: CECO), ITT Educational Services Inc. (NYSE: ESI), and Education Management Corp. (NASDAQ: EDMC) are all within the cross-hairs of regulatory efforts.

Congress continues to mull a potential crackdown and what the end game will be is still unclear.  Issues such as reimbursement rates and student loans could be part of the attack, but what the targets and goals are and how these companies will ultimately be treated by D.C. policymakers still are unknown.

The Department of Education has proposed rules that would cut off federal aid to schools that are “for-profit” if they have too high a rate of loan defaults or if students do not earn enough after graduation to repay loans.  The White House has proposed a formula that takes the debt-to-income ratio of recent graduates and whether students repay their loans on time.   The issue here at stake is not whether these institutions get to exist.  It is whether they will have mostly the same financial aid access as public and other accredited universities.

Last Friday (July 23, 2010) was a big day at the open for many of these stocks based upon the data that was available, but short sellers and more caution prevailed over at least some of that hype.  Most of these stocks have been bruised since April, but the sector has rallied sharply as a whole.

The for-profit education sector is one that has long been controversial.  Short sellers have made their moves and you often see large options trading activity on days when there is no news.  Rather than seeing event-driven strategies over an exact outcome of over an exact time period, that downward move in the sector looks theme-based as an industry headwind for 2010 and possibly beyond.

Apollo Group Inc. (NASDAQ: APOL) had lost more than one-third of its value since the woes came to the sector, but it was up at one point well over 10% Friday.  This is one of the benchmark stocks in the sector considering its size ($7.1 billion market cap) to peers.  Its accounting issues has only added more unknowns to the situation. At one point Friday, Apollo was up 20% from lows, and at $48.00 this Tuesday the stocks’ 52-week range is $41.45 to $76.86.

Career Education Corp. (NASDAQ: CECO) has been another sector benchmark as its  market cap is still above $2 billion.  While this one is down 30% from its 52-week highs, the stock is actually in the middle of its 52-week range of $18.21 to $35.88.  The price is currently around $26.00 per share.

Education Management Corporation (NASDAQ: EDMC) is one of the newer public companies companies in the sector, and it had lost nearly half its value from the peak of $26.98 in 2009.  The recovery from the lows is still under 10% at almost $16.00 versus a 52-week (actually 9 months) range of $14.74 to $26.98.

Corinthian Colleges Inc. (NASDAQ: COCO) has also had a very tough 2010.  From peak to trough, it has seen a loss of more than half its market with a 52-week range of $8.62 to $20.29.  That is just one more example of how volatile this sector’s trading can be. At $9.95, this remains one of the sector’s  bruised issued.

DeVry, Inc. (NYSE: DV) has also been punished with the sector despite the thought that much of its education and training certification programs are less targeted under the  proposed legislation.  At $56.00 today with a $4 billion market cap, its 52-week range is $46.53 to $74.36.

ITT Educational Services Inc. (NYSE: ESI) is lagging the group and the performance is unimpressive this week.  At $82.50, its 52-week range is  $77.78 to $121.98.  Deutsche Bank through in the towel and cut it to “Hold ” yesterday as it sees  possible urther weakness from regulation.

Adding a degree or more credentials during hard times and laid off workers adding a degree to better their future have helped keep enrolments high.  This has also kept the for-profit education sector at odds with the ‘non-profit’ and ‘public education sector.  The trick is to find anyone who believes that most public colleges and universities are not run like a growth business machine after the endless tuition hikes.  This is also on the heels of a movement after the government effectively took control over the student loan sector.

The regulatory issues at hand and the proposed regulation for and against the for-profit education companies are still developing and how this turns out is still not known.  Volatility and uncertainty reign here in this sector.  For those who have seen the woes come and go through time, these companies do not usually see their values cut this much.  Maybe this time really is different.  And maybe not.

JON C. OGG

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