Insiders are starting to go radio silent in advance of the release of third-quarter operating result...
Getting an A for Earnings
10/12/2009 11:04 am EST
Vahan Janjigian, editor of Forbes Growth Investor, says a for-profit education provider is posting strong revenue and earnings growth as Americans upgrade their skills.
Corinthian Colleges (Nasdaq: COCO) is an accredited for-profit post-secondary education provider with more than 86,000 students enrolled in 89 schools in 24 US states and 17 schools in the province of Ontario.
Students can earn a certificate in a diploma program [or] associate’s, bachelor’s, and master’s degrees. The curricula focus on five key fields: health care, business, information technology and electronics, criminal justice, and trades and transportation.
Health-related programs include medical assisting, medical insurance billing and coding, massage therapy, dental assisting, pharmacy technician, nursing, and hospital management. Other programs include heating, ventilation and air conditioning (HVAC); automotive and diesel technology; plumbing; electrical; computer and information technology; business administration; criminal justice; accounting, and paralegal.
In [the fiscal year ending June] 2009, roughly 85% of students received some federal aid, such as Pell grants or Stafford loans offered through the [US Department of Education, or ED]. Such government programs were responsible for 88.9% of the company’s net US revenues. In 2007, the company’s loan default rate was 15.2%.
COCO must meet certain guidelines in order to remain eligible for federal funding. In particular, no more than 90% of net revenues can come from federal aid, and annual loan default rates must remain below 25%.
Despite the struggling economy and rising unemployment (or perhaps because of it), for-profit educational institutions have experienced strong enrollment growth. Such schools generally charge substantially less tuition than their nonprofit counterparts do, yet they also enjoy high rates of job placement. In fact, COCO estimates that 78.1% of its 2008 graduates secured a job in a field for which they were trained within a year.
Fiscal 2009 net revenues surged 22.4% year over year to $1.31 billion. Enrollments also surged 24.4%. Since an increase in enrollment has little impact on costs, the operating profit margin hit 10.76% in the fourth fiscal quarter. Full-year net income from continuing operations jumped 116.4% to $71.1 million, or 81 cents per share.
While COCO’s dependence on federal aid and its susceptibility to government regulation present serious investment risks, we believe overall prospects remain promising. For example, a recent GAO report on the industry confirmed that loan default rates are well below the threshold used by the ED, which implies that drastic regulatory actions are not required.
Furthermore, the ED increased the maximum allowable grant under the Pell program by $619, which bodes well for COCO, since 70% of its American students received funding from this program in fiscal 2009. Grants for workforce training under Labor Department programs have also increased. These factors should help the company meet its goal of at least 20.6% revenue growth in fiscal 2010. (The stock closed above $18 Friday—Editor.)
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