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COCO: Top of the Class

04/09/2004 12:00 am EST


Sam Stovall

Chief Investment Strategist, CFRA Research

"The for-profit educational sector has come a long way since the days when awareness of the schools was limited to ads on matchbook covers and comic books," notes Sam Stovall of Standard & Poor's in The Outlook. Here's a review of the firm at the "top of the class."

"With an intensely competitive labor market driving adults to gain further education, we are bullish on the shares of Corinthian Colleges (COCO NASDAQ), which we view as one of the leading growth stories in the sector. The stock carries our highest 5 STARS buy rating. We see Corinthian's sales and profit growth remaining strong in coming years, fueled by ongoing robust demand in the sector, continued acquisitions and campus openings, additional enrollments at existing schools, and modest tuition increases. At year-end 2003, its total student population was 59,502, up 49% from a year earlier, with growth coming from acquisitions, new school openings, and, most important, much higher enrollments at existing campuses.

"Corinthian's prospects for its strong levels of growth to persist are quite positive. We believe that the combination of rising worker ambition and the need for greater knowledge to maintain workforce positions has led many more adults to become aware of programs offered by for-profit educators such as Corinthian. A favorable cost comparison with private nonprofit institutions is another factor that we believe makes Corinthian's educational programs appealing. One additional factor that should make Corinthian's offerings appealing is its focus on attractive markets such as healthcare, business, and information technology.

"We think the shares are undervalued. Based on our positive opinions of both the prospects for the for-profit education industry and Corinthian's business model, we expect the outfit to record strong revenue and profit growth for the next several years. Our present forecast calls for Corinthian's revenues to climb over 55% in fiscal 2004. We expect earnings to rise 40%, in fiscal 2004. By blending our price to earnings growth model with our discount to cash flow methodologies, we arrive at our 12-month target price of $44."

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