Apollo Group Inc. (NASDAQ: APOL) Reiterated Buy and raised price target to $63 from $55 at Argus.
ASML Holding N.V. (NASDAQ: ASML) Raised target at Credit Suisse.
AutoNation Inc. (NYSE: AN) Started as Neutral at Stern Agee.
Bank of America Corporation (NYSE: BAC) Cut to Underperform from Neutral at Zacks (late Monday call).
Choice Hotels (NYSE: CHH) Cut to Underperform from Neutral at Credit Suisse.
Gulfmark Offshore, Inc. (NYSE: GLF) Started as Outperform at Credit Suisse.
HSN, Inc. (NASDAQ: HSNI) Started as Buy at Stifel Nicolaus.
ICICI Bank Ltd. (NYSE: IBN) Cut to Underperform as Bear of the Day at Zacks.
Intel Corporation (NASDAQ: INTC) maintained as the top tech/semi pick for 2012 from Credit Suisse.
Macy’s Inc. (NYSE: M) Reiterated Outperform and raised target to $36 from $32 at Credit Suisse.
Motorola Mobility Holdings Inc. (NYSE: MMI) Maintained Sell at Argus.
Netflix, Inc. (NASDAQ: NFLX) Cut to Underperform from Neutral at BofA/ML.
Overseas Shipholding Group Inc. (NYSE: OSG) Cut to Market Perform at Wells Fargo.
Republic Services, Inc. (NYSE: RSG) Cut to Neutral at JPMorgan.
Ryder System, Inc. (NYSE: R) named as value stock of the day at Zacks.
SM Energy Co. (NYSE: SM) Maintained Outperform as Bull of the Day at Zacks.
Starbucks Corporation (NASDAQ: SBUX) Reiterated Buy and raised estimates at Argus.
Tidewater Inc. (NYSE: TDW) Started as Neutral at Credit Suisse.
The Walt Disney Co. (NYSE: DIS) Cut to Equal-weight at Barclays.
Xerox Corporation (NYSE: XRX) Cut to Equal-weight at Barclays.

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JON C. OGG

The unofficial closing bells put the DJIA down nearly 56 points to 12,359.92 (-0.45%), the NASDAQ rose more than 4 points (0.16%) to 2,674.22, and the S&P 500 fell -0.25% or more than 3 points to 1,277.81.

There were several analyst upgrades and downgrades today, including Goldman Sachs Group Inc. (NYSE: GS) cut to ‘market perform’ at Wells Fargo; Apollo Group Inc. (NASDAQ: APOL) reiterated as ‘outperform’ and target price raised to $60 at Credit Suisse; Kohl’s Corp. (NYSE: KSS) cut to ‘hold’ at Argus; SanDisk Corp. (NASDAQ: SNDK) raised to ‘buy’ at Sterne Agee; and FedEx Corp. (NYSE: FDX) started as ‘outperform’ at Wells Fargo.

Earnings reports of note since markets closed yesterday include: Commercial Metals Co. (NYSE: CMC) is up more than 4% at $15.01; Apollo Group is up about 5.5% at $56.68, after posting a new 52-week high of $57.09 earlier today; Imperial Sugar Co. (NASDAQ: IPSU) is down nearly -6% at $3.32; PriceSmart Inc. (NASDAQ: PSMT) is down nearly -15% at $60.13; Greenbrier Cos. (NYSE: GBX) is up nearly 9% at $25.97; and Texas Industries Inc. (NYSE: TXI) is down more than -3% at $28.15.

Other standouts from today include the following stocks:

Acadia Healthcare Co. Inc. (NASDAQ: ACHC) is up nearly 19% at $11.60 after posting a new 52-week high of $11.81 earlier today. The healthcare services company agreed to pay $91 million to acquire three additional facilities in Arizona, Oklahoma, and Texas.

Krispy Kreme Doughnuts Inc. (NYSE: KKD) is up nearly 12% at $7.16. The doughnut maker recently opened its 10,000th store and the stock was upgraded to ‘overweight’ at Stephens with a target price of $8.50.

RF Micro Devices Inc. (NASDAQ: RFMD) is down more than -19% at $4.55 after posting a new 52-week low of $4.45 earlier today. The technology company warned that sales in the third fiscal quarter would be 10% lower than previously forecast.

EnerNOC Inc. (NASDAQ: ENOC) is down nearly -9% at $9.43. The energy services company’s revenues are threatened by a recent regulatory ruling.

Saba Software Inc. (NASDAQ: SABA) is up more than 15% at $8.54. The cloud software company lost less than expected in its most recent quarter and said that it would return to profitability in the second of the year.

Hovnanian Enterprises Inc. (NYSE: HOV) is up more than 10% at $1.73. The homebuilder’s stock is probably reacting to the remarks by two Fed presidents supporting additional lending and homebuilding.

Stay tuned for Monday. Atlanta Fed President Dennis Lockhart is giving a speech. Here are the noteworthy events on the schedule (all times Eastern):

• 11:30 a.m. – 3- and 6-month Treasury bill auctions
• 3:00 p.m. – Federal Reserve consumer credit report

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Paul Ausick

AGCO Corporation (NYSE: AGCO) Maintained Outperform as Bull of the Day at Zacks.
Apollo Group Inc. (NASDAQ: APOL) Reiterated Outperform and Raised Target to $60 at Credit Suisse.
Boston Scientific Corporation (NYSE: BSX) Maintained Hold but lowered estimates at Argus.
Career Education Corporation (NASDAQ: CECO) Cut to Hold at Argus.
Dendreon Corporation (NASDAQ: DNDN) Reiterated Neutral with $10 target at Baird.
FedEx Corporation (NYSE: FDX) Started as Outperform at Wells Fargo.
Goldman Sachs Group Inc. (NYSE: GS) Cut to Market Perform by Wells Fargo.
Huntsman Corporation (NYSE: HUN) named as Value Stock of the Day at Zacks.
Illinois Tool Works. Inc. (NYSE: ITW) Cut to Neutral at Credit Suisse.
Intel Corporation (NASDAQ: INTC) Cut to Neutral at Stern Agee.
Kohl’s Corporation (NYSE: KSS) Cut to Hold at Argus.
SanDisk Corporation (NASDAQ: SNDK) Raised to Buy at Stern Agee.
TD AMERITRADE Holding Corporation (NASDAQ: AMTD) Raised to Buy at Deutsche Bank.
The Travelers Companies, Inc. (NYSE: TRV) Raised to Outperform at Wells Fargo.
United Parcel Service, Inc. (NYSE: UPS) Started as Market Perform at Wells Fargo.
Urban Outfitters Inc. (NASDAQ: URBN) Started as Underperform and named as Bear of the Day at Zacks.
Vodafone Group PLC (NYSE: VOD) Raised to Buy at Goldman Sachs.
Zhongpin, Inc. (NASDAQ: HOGS) Started as outperform at Oppenheimer.

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JON C. OGG

The for-profits face tighter rules on recruiting and somewhat closer oversight on graduation and job placement rates. Student loan defaults continue to be a problem, and last month the US Government Accounting Office reported on widespread cheating at some of the schools. And one of the schools, Career Education Corp., had its CEO resign. All in all, what was once a high-flying sector has lost a good deal of its appeal.

Apollo Group, which owns the University of Phoenix, is the largest of the for-profit operators based on student enrollment. The company’s stock has a median target price of $54.00, up from $53.00 on November 1st. At a current price of $50.01 at around noon today, the potential upside for the shares is 8%. Shares have gained nearly $4.00 since November 1st.

The Washington Post owns the Kaplan schools. The company’s median target price is a meaningless $275.00 from a single broker who must not have noticed that the share price is now $349.00. The drag on the company’s stock comes from its newspaper operations, of course, without which the Post would be operating at a loss.

Strayer has a median target price of $100.00, down from $104.00 on November 1st. The current share price is $99.43, leaving an implied gain of less than 1%. The company recently purchased the Jack Welch Institute of Management, which gave the stock a shot in the arm. Shares are down about -28% for the past 12 months.

DeVry has a median target price of $52, slightly lower than its target of $52.50 on November 1st. The shares are trading today at $35.22, for a potential upside of 47.6%. The stock goes ex-dividend tomorrow in advance of its twice-yearly dividend payment of $0.15/share. DeVry’s stock is down nearly -20% for the past 12 months.

Career Education has a median target price of $9.50, a drop of more than -50% from its target of $20.00 on November 1st. Shares are trading today at $7.33, for a potential upside of 29.6%. Of all these stocks, this one has been hammered the most over the past year, with a share price loss of nearly -61%. The CEO resigned last month, and 49 of the company’s schools must this month show reasons why they should not lose their accreditation.

Of these schools, only Apollo, which has seen its share price grow by about 37% in the past year offers even the remotest opportunity for investors. The stock’s 52-week high is less than $0.25 higher than its new target price, and the company claims that it came out clean in the GAO cheating investigation because it was one of the three schools to deny admission to students based on insufficient credentials. Enrollments are the key for Apollo, though, and it will have to spend more to keep those enrollments up.

The rest of this group is so weak that even lowered targets may be well out of reach. Overall, for-profit schools are unlikely to repeat the rapid growth they managed just a few years ago. There could be some consolidation in this sector or some closures. Either would be a big help.

Paul Ausick

The US Government Accountability Office (GAO) has issued a new report on for-profit education that was prepared at the request of US Senator Tom Harkin (D-IA), a long-time critic of the for-profit sector. This report focused on how closely the colleges adhered to their own policies related to admissions credentials, cheating, and counseling students who withdraw.

The GAO does not identify the 15 schools included in the study by name, but it does say that the study did include the top 5 based on enrollment in 2008. The likely suspects include Apollo Group Inc. (NASDAQ: APOL), Education Management Corp. (NASDAQ: EDMC), The Washington Post Co. (NYSE: WPO), DeVry, Inc. (NYSE: DV), ITT Educational Services Inc. (NYSE: ESI), Strayer Education Inc. (NASDAQ: STRA),. and Career Education Corp. (NASDAQ: CECO).

The study resembled an undercover sting operation. The GAO tried to enroll students with false high school credentials, and once admitted, the students plagiarized assignments, turned in clearly incorrect assignments, and regularly skipped class. The overall results indicated that 8 of the 15 schools mostly complied with their own policies, while at the other 7 the GAO said it found “mixed results.”

Regarding academic performance policies, the GAO had this to say:

At 6 colleges, instructors acted in a manner consistent with school policies in this area, and in some cases attempted to contact students to provide help outside of class. One or more instructors at 2 colleges repeatedly noted that the students were submitting plagiarized work, but no action was taken to remove the student. One or more instructors at the 4 remaining colleges did not adhere to grading standards. For example, one student submitted photos of celebrities and political figures in lieu of essay question responses but still earned a passing grade.

That totals only 12 schools because 3 of the schools refused to admit students who could not provide acceptable high school credentials.

By itself, this study probably won’t have much effect on the for-profit schools share prices, but it does let investors know that the schools’ policies and practices remain under scrutiny. There is little question that the prosperity that these schools achieved in the 2000s was largely due to the huge increase in federal student loan dollars that flowed in as the schools’ enrollments surged. Changes in federal law and continuing investigative pressure will definitely have an impact on these schools going forward.

Senator Harkin is also investigating the recruiting of military veterans by the for-profit schools. Due to a quirk in the law, veteran’s benefits are not included in the requirement that no more than 90% of a school’s revenue can come from federal financial aid programs. In 2010-2011, veteran’s education payments to 8 for-profit schools increased by 86%, to $627 million, about 14% of the $4.4 billion total veteran education benefits for the 2010-2011 academic year.

For-profit schools will stay on the radar both because of the ongoing investigations into their activity, but also because budget-cutting time in the US Congress could hit these schools pretty hard.

Paul Ausick

The ten companies we have looked at are Apollo Group (NASDAQ: APOL), Education Management (NASDAQ: EDMC), American Public Education (NASDAQ: APEI), Strayhorn Education (NASDAQ: STRA), DeVry (NYSE: DV), Washington Post (NYSE: WPO), Corinthian Colleges (NASDAQ: COCO), Bridgeport Education (NYSE: BPI), Grand Canyon Education (NASDAQ: LOPE), and Career Education (NASDAQ: CECO).

All data is from Yahoo! Finance, and current share prices were gathered in the mid-afternoon today.

Apollo Group has a median target price of $53.00 from 15 brokers. Shares are trading today at $46.09, for an implied gain of $6.91, or 15%. Apollo’s forward P/E is 12.72 and the company does not pay a dividend. The stock’s 52-week trading range is $33.75 to $54.23, and at today’s price that is about 37% above its 52-week low and 15% below the 52-week high. The company reported better-than-expected quarterly earnings a couple of weeks ago and jumped more than 10% in a day. But lower enrollments plague the company, which has managed to keep revenue up by raising tuition and fees.

Education Management has a median target price of $20.00 from 11 brokers. Shares are trading today at $20.48, about 0.5% above the target price. Education Management’s forward P/E is 13.36 and the company does not pay a dividend. The stock’s 52-week trading range is $11.56 to $28.61. At today’s price it is about 77% above its 52-week low and 28% below the 52-week high. The company beat both quarterly EPS and revenue estimates when it reported earnings last week. But a warning on future enrollment and profit declines have cooled enthusiasm for the shares.

American Public Education has a median target price of $45.00 from 10 brokers. Shares are trading today at $35.11, for an implied gain of $9.89, or 28%. APEI’s forward P/E is 14.50 and the company does not pay a dividend. The stock’s 52-week trading range is $26.15 to $49.29, and at today’s price that is about 49% above its 52-week low and 26% below the 52-week high. The company reports earnings next week and is expected to post EPS of $0.42 on revenue of $62 million. The EPS figure is less than the June quarter, but better than the same period a year ago.

Strayhorn Education has a median target price of $104.00 from 12 brokers. Shares are trading today at $83.06, for an implied gain of $20.94, or 25%. Strayhorn’s forward P/E is 11.39 and the company pays a dividend yield of 4.6%. The stock’s 52-week trading range is $69.34 to $165.73 Today’s price is about 29% above its 52-week low and 50% below the 52-week high. The company reports earnings on Thursday and is expected to post EPS of $1.07 on $139 million in revenue. That is a big dip from the same quarter a year ago, when EPS came in at $1.72, and an even bigger dip sequentially, from $2.53 in the June quarter.

DeVry has a median target price of $52.50 from 16 brokers. Shares are trading today at $38.14, for an implied gain of $14.36, or 38%. DeVry’s forward P/E is 8.55 and the company pays a dividend yield of 0.6%. The stock’s 52-week trading range is $34.24 to $66.85, and at today’s price that is about 11% above its 52-week low and 43% below the 52-week high. The company missed both EPS and revenue projections last week when it reported its first fiscal-quarter 2012 results. Enrollment was also lower as bleak job prospects keep potential students away.

Washington Post has a median target price of $275.00 from just a single broker. Shares are trading today at $336.80, about 18% above the target price. The forward P/E is 19.44 and the company pays a dividend yield of 2.6%. The stock’s 52-week trading range is $308.50 to $455.68. Today’s price is about 9% above its 52-week low and 26% below the 52-week high. The Kaplan education division of the company contributes more than 50% of Washington Post’s revenues and nearly half of net income. The company is expected to post EPS of $3.85 on revenue of $1 billion this Friday. The lack of coverage makes this stock a tough one to figure out.

Corinthian Colleges has a median target price of $2.00 from 10 brokers. Shares are trading today at $2.04, fractionally above the target price. Corinthian’s forward P/E is 9.93 and the company does not pay a dividend. The stock’s 52-week trading range is $1.24 to $6.12, and at today’s price that is about 65% above its 52-week low and 67% below the 52-week high.

Bridgeport Education has a median target price of $26.00 from 10 brokers. Shares are trading today at $22.94, for an implied gain of $3.06, or 13%. Bridgeport’s forward P/E is 8.88 and the company does not pay a dividend. The stock’s 52-week trading range is $13.89 to $30.62, and at today’s price that is about 65% above its 52-week low and 25% below the 52-week high. The company posted better-than-expected third-quarter earnings this morning and raised full-year EPS guidance to $2.95 to $2.98. Enrollment is expected to fall by about 5,000-8,000 students by the end of December.

Grand Canyon Education has a median target price of $18.50 from 10 brokers. Shares are trading today at $15.97, for an implied gain of $2.53, or 16%. Grand Canyon’s forward P/E is 13.22 and the company does not pay a dividend. The stock’s 52-week trading range is $12.26 to $20.66, and at today’s price that is about 30% above its 52-week low and 35% below the 52-week high. The company reports third-quarter earnings next week and is expected to post EPS 0f $0.25 on $109 million in revenues.

Career Education has a median target price of $20 from 11 brokers. Shares are trading today at $15.79, for an implied gain of $4.21, or 27%. The forward P/E is 8.77 and the company does not pay a dividend. The stock’s 52-week trading range is $12.24 to $27.60, and at today’s price that is about 29% above its 52-week low and 43% below the 52-week high. The company reports third-quarter earnings next week, and the consensus EPS estimate is $0.34 on $457 million in revenue. The EPS estimate has been trimmed from $0.46 over the past three months. Shares gained nearly 5% on October 19th, following the strong earnings report from Apollo.

Paul Ausick

Apple Inc. (NASDAQ: AAPL) Reiterated Overweight at JPMorgan; Reiterated Outperform at Credit Suisse; Reiterated Buy at Canaccord Genuity.
Apollo Group Inc. (NASDAQ: APOL) Raised to Outperform with $47 target at Credit Suisse.
Federated Investors, Inc. (NYSE: FII) named Bear of the Day at Zacks.
Google Inc. (NASDAQ: GOOG) Cut to Hold at Stifel Nicolaus.
Hewlett-Packard Co. (NYSE: HPQ) Cut to Underweight at JPMorgan.
Hess Corp. (NYSE: HES) maintained Buy but cut target to $85 at Argus.
The Home Depot, Inc. (NYSE: HD) Cut to Neutral at Goldman Sachs.
Mednax Inc. (NYSE: MD) Started as Neutral with $67 target at Credit Suisse.
Netflix, Inc. (NASDAQ: NFLX) Started as Neutral at Stern Agee.
Oracle Corporation (NASDAQ: ORCL) Reiterated Buy at Canaccord Genuity.
Plains All American LP (NYSE: PAA) named Bull of the Day at Zacks.
PP&L Corporation (NYSE: PPL) reiterated Buy with $31 target at Argus.
Walt Disney Co. (NYSE: DIS) Raised to Buy at Citigroup.
Yandex N. V. (NASDAQ: YNDX) Started as Underperform at Credit Suisse.
Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) Cut to Sell at Citigroup.

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That announcement was followed earlier this week by the inclusion of an increase in Pell grants under both Republican and Democratic debt-ceiling proposals. That also boosted the sector. But today’s earnings report from Strayer Education Inc. (NASDAQ: STRA) may have tossed a wrench into the works. Higher costs and lower enrollments are pummeling Strayer stocks, down about -13% in early trading. Shares in Apollo Group Inc. (NASDAQ: APOL), Corinthian Colleges, Inc. (NASDAQ: COCO), DeVry Inc. (NYSE: DV), and Education Management Corp. (NASDAQ: EDMC) are all trading lower this morning as well.

Strayer didn’t perform all that poorly. The company reported EPS of $2.53/share compared with a consensus estimate of $2.39. Revenue of $163.8 million failed to meet an estimate of $166 million however. Operating margin fell from 38.6% in the same period a year ago to 30.6% and enrollment fell 8.5% year-over-year. New-student enrollment fell -21% and global online enrollment fell -12%.

Strayer’s 52-week trading range is $113.25-$241.76, and the stock closed yesterday at $143.25, a drop of -41%. Following the Department of Education ruling in June, Goldman Sachs raised the company’s target price from $137 to $151. Strayer’s shares trading today at around $124.50.

Short selling has been a hallmark of the sector for a while, as hedge funds have been betting against the schools due to their students’ poor loan repayment records. Shorts hold about 32% of Corinthian College’s float and about 23% of Strayer’s.

The Department of Education has reported that 12% of all higher education students are enrolled in for-profit colleges, that these students receive 26% of all student loans, and that 46% of all loan dollars are in default. The defaults are in large part attributed to the fact that graduates have poor luck getting a job after they finish their program.

New enrollments are the key to profits here. As long as the schools keep bleeding students they will also continue to bleed revenue and profits.

Paul Ausick

Apollo Group Inc. (NASDAQ: APOL) is up more than 5% premarket to $45.96, relative to a 52-week range of $33.75-$53.61. BofA Merrill Lynch raised its PO on the stock from $50 to $52.

Blackboard, Inc. (NASDAQ: BBBB) is up nearly 2% premarket on heavy volume to $44.17, relative to a 52-week range of $32.55-$50.25. Equity firm Private Equity Partners is purchasing the company at full cash value.

Dendreon Corporation (NASDAQ: DNDN) is trading up 5.7% this morning after announcing positive developments around Provenge.  Most important is the impact of Medicare coverage for its prostate cancer drug. In the after-hours session last night we saw some 599,742 shares trade through NASDAQ after-hours and the stock went out up 3.7% at $40.90.

Apollo’s adjusted earnings were $1.51 EPS, well above the Thomson Reuters estimate of $1.33 EPS.  The company also gave guidance to a range of $4.65 to $4.75 billion for 2011 and it gave guidance of about $4.00 to $4.25 billion in 2012.  Here is why that matters: Thomson Reuters has estimates of $4.67 billion this year (August year-end), but the estimate for 2012 is $4.14 billion.

Outside of special items, the company gave operating income guidance of $1.15 to $1.20 billion in 2011 and $675 to $800 million.

This is a mid-point guidance ahead and it translates to a lower drop-off than the base case that analysts were fearing.  Our take is that analysts may even come out and say that Apollo’s management team was being very conservative.

The owner of the University of Phoenix beat earnings expectations because tuition fees offset a large drop of just over 40% in student enrollment.  Its total degreed enrollment dropped by about 16%.  This also matters.  For-profit education stocks are no longer growth stocks.  They have to be evaluated as value stocks for the time being.

The company is also winning on its share buyback plan: It repurchased approximately 4.1 million shares of common stock at a weighted average purchase price of $40.26 and $39.48 per share for a total expenditure of $167.3 million during the quarter; for the last nine-months is repurchased and 10.6 million shares of common stock at a weighted average purchase price of $39.48 per share for a total expenditure of $418.7 million.

At the end of May, the company had approximately $357.7 million remaining available to repurchase stock.  Apollo also ended with more than $1.42 billion in unrestricted cash at the end of the quarter.

Apollo closed up 1.5% at $43.68 today and shares are up 6% around $46.00 in the after-hours session.  Its 52-week trading range is $33.75 to $53.61.

UPDATE AT 5:50 PM EST:  Apollo shares are now down almost 3% at $42.44 on last look in the after-hours session despite being under the 90/10 rule.

JON C. OGG