2009-01-29 21:26:06 -

Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis includes Apollo Group Inc. (Nasdaq: APOL), ITT Educational Services, Inc. (NYSE: ESI), New Oriental Education and Technology Group, Inc. (NYSE: EDU), Lincoln Educational Services Corporation (Nasdaq: LINC) and ChinaCast Education Corporation (Nasdaq: CAST).


Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.


This week: Enrollment Rises For Education Companies


Better-than-expected earnings from Apollo Group Inc. (Nasdaq: APOL) and ITT Educational Services, Inc. (NYSE: ESI) provided a lift to several for-profit education providers last week.


In both cases, growth was driven by an increase in the student population. This is important, because unlike tuition

hikes, growth in enrollment signifies stronger demand.


APOL Beats By 15 Cents


Last week, APOL reported fiscal first-quarter profits of $1.12 per share; brokerage analysts had expected 97 cents. Consolidated revenues surged 24.4% to $971 million.


Degreed enrollment rose 18.4%. New degreed enrollment of bachelor students at the company's University of Phoenix grew by nearly 20%.


In response to the report, 13 brokerage analysts raised their fiscal 2009 profit projections. The revisions caused the consensus earnings estimate to reach $3.78, a 31-cent increase.


ESI Provides Bullish Guidance


ITT Educational Services' fourth-quarter profit totaled $1.61, 17 cents better than the consensus forecast. Revenues surged 21.4% to $279.8 million.


Total student enrollment increased 16.9% to 61,983. Nearly 15,000 new students enrolled, which equates to 29.2% growth.


CEO Kevin Modany observed that he did not see "any further disruption" in students' ability to obtain loans. He does not expect access to financing to be more difficult this year, but did acknowledge that bad debt expense could continue to rise. (APOL also saw an increase in bad debt last quarter, though the current and projected levels are manageable for both companies.)


Modany believes his company's profits will total between $6.25 and $6.45 per share in 2009. Nearly all of the covering brokerage analysts raised their forecasts in response, pushing the consensus earnings estimate 78 cents higher to $6.44 per share.


Estimates Raised On Other Education Providers


Brokerage analysts also recently raised full-year consensus earnings estimates on New Oriental Education and Technology Group, Inc. (NYSE: EDU), Lincoln Educational Services Corporation (Nasdaq: LINC) and ChinaCast Education Corporation (Nasdaq: CAST).


New Oriental provides private educational services in China. Last week, the company reported a fiscal second-quarter profit of 8 cents per share, a penny above expectations.


Revenues surged 53.7% to $49.4 million. Total student enrollment increased 13.4% to 257,700.


APOL, ITT, and CAST are Zacks #1 Rank ("strong buy") stocks. LINC is a Zacks #2 Rank ("buy") stock. EDU is Zacks #3 Rank ("hold") stock. They are all classified in Schools (at.zacks.com/"id=4952).


Lawsuit Filed Against Apollo Group


Though the numbers look good, investors should be aware of a lawsuit that was filed by 3 former University of Phoenix students against the Apollo Group last month. The suit alleges that "with regard to students who dropped from their courses shortly after enrolling, University of Phoenix improperly returned the entire amount of the students' federal loan funds to the lender."


The plaintiffs have proposed seeking class-action status.


At this time, we have no idea if the lawsuit has any merit. This could simply be a matter where the University of Phoenix handled matters correctly and the students are disgruntled. The lawsuit was not discussed during last week's conference call.


For-profit education providers have had previous legal and regulatory issues. Therefore, investors need to weigh the legal risk against the favorable business trends when researching APOL. (I recently locked in a profit on the stock in the Zacks Elite Focus List, electing to sell first and ask questions later.)


Related ETFs


There are no exchange-traded funds that focus on for-profit education providers.


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Zacks.com

Charles Rotblut, CFA

312-265-9352

Email: pr@zacks.com

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