David Tsao

The New Reality for Higher Education

What Mr.Salomon is eluding too is a possible shift and serious consideration for what was once the trade school circuit (The DeVry's, ITT, and Corinthian's of the world). If the value/price conscious parent/student continues to remain after an economic recovery, these outfits may continue to see strong enrollments... At last check most of these companies are fully valued and have discounted the strength of this sector for the remainder of this year and next.

Earnings Disappointment a Good Entry Point for Apollo Group?

You need to pay attention to the quality of the students for these for-profit programs. I'm not saying that University of Phoenix students are of bad quality, but making a reference to the majority of students are coming from. Are they coming from high school, which I would categorize as representing larger risk for defaulting on payment (higher allowance for doubtful accounts), or from employer sponsored tuition or transfers out of 2-year diploma programs (stronger credit and financial backing).

Method of payment also make a huge difference whether the school demands payment up front (like Strayer). I honestly don't know the payment details for Apollo's programs, nor do I have student demographics off the top of my head, but it's best to dig into that before diving in.

For-Profit Education Sector: Recession Proof

The issue is now is that many others have caught on to this and have priced many of these assumptions in, and to a large extent pushed them towards rather lofty valuations. I'm about to exit my DeVry position for this very reason.

Regarding the unfreezing of securitization markets, that was something that was pushed in the previous administration. It obviously helped, but it's still hard to see to what degree on companies like APOL and ESI which had a relatively large exposure to private lending compared to STRA and DV.

I'd be a bit cautious about this sector, as everyone has or will continue to pile on to this boat.

A Second Look at Educational Services and Student Lending Problems

CECO is the one that may fall by the way side. I'll be spending the next few days going over Strayer and DeVry's offerings with repect to healthcare (nursing) as this area of the employment market should bloom with baby boomer generation heading into retirement (need for healthcare, etc.)

I don't buy the story that technology education will slow because of the offshoring to India/China/Eastern Europe. Fortune 500 companies will soon realize that there is a need for engineers on both sides of the ocean, and that bottom line billable hour costs are not the only thing CFO's and CIO's should focus on.

This may spell some softness for tech education programs, but things will turn around.

ITT Educational Services Offers an Investment for the Future

Nice analysis. What do you make of the recent problems with FFEL (Title IV) lenders suspending loans? I was trying to dig for more information regarding how much FFEL exposure there was for ESI, DV, STRA CECO, and APOL. Some of the companies have broken out their Title IV base as a percentage of revenues, but it's not readily available. I'll currently focusing on DV and STRA at the moment, as I ruled ESI out even in light of your analysis here due to their high exposure to private loans.

I think another angle to look at this is what pool of FFEL lenders are available to these schools and how many of them will be exiting the gates like Brazos did a few days ago. How fast can ESI, APOL, and the like fill this gap if lenders were to leave?