Hedge Fund Live's  Instablog

Investment Thesis

I.Favorable Industry Dynamics

i.Strong Demand

According to US Census bureau, only 34% of 128 million working adults (25 years and older) have a 4 year college degree. Only 10%   have post graduate or professional degrees

ii.High Profitability

Tuition pricing is typically set by traditional schools, which have much higher cost structures than for-profit schools like DeVry.           Additionally, the government aid limits are adjusted based on tuition prices of traditional schools

The intense demand from target students and government set aid limits allow companies like DeVry to provide educational services at prices similar to traditional schools, but with much lower costs.

II.Margin Expansion

i.Operating Leverage

In 2010, DeVry University increased enrollment by 14.9% and saw operating margins expanding from 13% in 2009 to 23% in 2010

ii.Positive Mix-Shift

At full capacity, operating margin of Medical & Healthcare segment is approximately 34% while operating margin of Business &               Technology segment is 23%. The current enrollment trends point towards increasing enrollment in Medical & Healthcare segment as   a percent of total enrollment. This creates a positive mix shift

III. Mis-pricing Due To Uncertainty Related To Gainful Employment Regulation

Debt burden results are unknown. Two possibilities can arise :

i. DV retains fully eligible (upside case) – high growth and expanding margins

ii. DV is restricted (base case) – can still grow tuition from 3%-6%