More Stress for the For Profit Educators
“The 20% decline in STRA’s Winter Term new student enrollment indicates that enrollment challenges are more severe and, perhaps more concerning, longer in duration than previously feared,” wrote Jarrel Price of Height Analytics in a research note this morning. He noted that most investors were expecting flat to slightly negative new student enrollments for the next couple of quarters, before a possible recovery in the second half.
“Despite STRA’s insistence that this enrollment decline (largely due to bad press) does not warrant structural changes to its business plan, we believe this softening of demand may confirm fears that STRA is exposed to the same cyclical and regulatory risks as its peers, further tarnishing its premium valuation. Should Apollo Group (APOL) forecast extended declines as well when it reports 1Q11 earnings post-close today, we believe bull-case expectations for a relatively quick enrollment recovery could be challenged and this could represent a second reset in the for-profit sector.”
This latest setback comes amid the continued regulatory overhang, which hampered the sector throughout 2010."