For Profit Educators Downgrade: Beware Political / Regulatory Risk

We are downgrading Apollo Group (APOL), ITT Educational Services (ESI) and Lincoln Educations Services (LINC) to Neutral from Outperform mostly due to rising concerns that a more-challenging legal/regulatory environment could hinder longer-term growth and hold back valuation multiples near-term

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We now see a higher probability of a “worse scenario,” whereby, later this year, Congress or the DOE will contemplate legal or regulatory changes that could adversely impact for-profit education sector growth more significantly.

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Further, we think the probability that the proposals will result in legal/regulatory changes is higher than it would have been in years past, as we think the Democratic administration, and Shireman specifically, is likely less sympathetic toward the for-profits than the Bush administration was.

- Credit Suisse Report, April 21

This is the kind of thing every investor has to start worrying about and paying attention to these days: Political risk!

Disclosure: Top Gun is long Apollo Group (APOL).