Capella Leads For-Profit Colleges’ Downturn (CPLA, APOL, DV, CECO, COCO, STRA, WPO)

The crackdown on financial aid to students at for-profit colleges has taken a toll on the revenues of these institutions over the past couple of years. But the restrictions on the way these schools recruit and admit new students may be the biggest problem the colleges face. Today’s earnings from Capella Education Co. (NASDAQ: CPLA) highlight the problem.

A quick check of seven of these for-profit schools shows that over the past five years only one is showing a profit: DeVry Inc. (NYSE: DV) is up 6.6% since April of 2007. For the same period, Apollo Group Inc. (NASDAQ: APOL) is down -29%, Career Education Corp. (NASDAQ: CECO) is down -77%, Corinthian Colleges Inc. (NASDAQ: COCO) is down -74%, Strayer Education Inc. (NASDAQ: STRA) is down -33%, and the Washington Post Co. (NYSE: WPO), owner of the Kaplan franchise, is down -50%.

Capella reported this morning that first quarter EPS came in at $0.82 on revenue of $109.4 million. The consensus estimates called for EPS of $0.78 on revenue of $110 million. In the same period last year Capella posted EPS of $0.90 on revenue of $111.35 million.

What hurt the company today is its enrollment forecast. Capella’s new student enrollments have fallen for six straight quarters, including a loss of -5% in the first quarter of 2012. The company’s CFO said in a conference call that Capella is “less optimistic” about enrollment growth throughout 2012, and that the company expects to see enrollment declines in “the high single-digit” range for the current quarter.

Contributing to the enrollment troubles at Capella and the others is recent legislation introduced into the US House of Representatives that would severely curtail the use of any federal money by the schools to advertise and market to potential students. The legislation would also apply to non-profit schools, but the impact would be greatest on the for-profits.

The legislation faces stiff opposition in both the House and the Senate and may well be defeated. That is not likely to not constrain future efforts to rein in the flow of federal dollars to for-profit schools.

Capella’s shares are down -9.6% at about noon today, at $31.12 in a 52-week range of $26.12-$54.86.

Paul Ausick

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