For-Profits Profiting Short Sellers

By Kyle Metivier - August 2, 2012 | Tickers: APOL, BPI, COCO, DV, STRA | 0 Comments

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“Please, try to understand. I don't have the background for this. I mean, the high school I went to, they asked a kid to prove the law of gravity, he threw the teacher out the window!” – Thornton Melon, Back to School

Senator Tom Harkin, Chairman of the Senate Health, Education, Labor and Pensions Committee, will release a Gore Vidal-worthy report on the for-profit education industry. As a reminder, and to provide a little perspective before this report is spilled before our eyes, suitable for public consumption, keep in mind that the last dalliance between Harkin, the GAO (General Accounting Office), and the DOE (Department of Education) was rife with inaccuracies, witness tampering and some short-selling chicanery. Prior to the hearings that took place August of 2010 it was later revealed that short-seller Steven Eisman had discreetly met with DOE officials in April.

Mark the date; this is the first and only time you will see my eloquent prose littered with a table:

My apologies for rounding the numbers, since childhood I preferred fractions to decimals. I won’t go into my usual diatribe with regards to my disdain for most things congressional. Nor will I point out that after the “damage” had been done in 2010 and Mr. Eisman banked a few dollars; there were 16 errors which required changes to the GAO’s initial report.

Feel free to undertake your own investigation and homework if you deem it necessary, but with continued nonsense of this type going on, I wouldn’t touch the for-profit industry with found money. It definitely makes me wonder whether certain short-sellers are looking to ring the registers yet again.

A roster of 30 for-profit colleges are mentioned in great detail in this report, including Apollo Group (NASDAQ: APOL), Bridgepoint Education, Inc (NYSE: BPI), Corinthian Colleges, Inc (NASDAQ: COCO), DeVry, Inc (NYSE: DV), and Strayer Education, Inc (NASDAQ: STRA).

Apollo has over 470,000 students and currently trades delicately close to its 52-week low. It’s been a rough year for the Greek God of Light, shedding nearly 50% of its share price since January. Bridgepoint, with over 77,000 students cracking the books, has had a much rougher go of it this year, booking over 60% in losses. They report earnings August 7^th, so look out below. Corinthian has over 113,000 students actively pursuing a better life, but the shares are trading so low, there’s not really much room to fall. Despite their positive Olympic ads, DeVry has lost about 50% this year. They enroll over 130,000 and report earnings August 9^th, in case anyone wants to hear how things are going for them.

That brings me to the most compelling of this troubled bunch: Strayer. If I were forced to make an investment in the space, it would have to be these folks, even after recently reporting a miss on enrollments. It’s quite possible that the players in this space are taking the scrutinizing spotlight somewhat more seriously and keeping a closer eye on just who they let through the doors. Strayer started the year around $94 per share, and after the miss it’s taking a bit of a hit, falling below $73. With the recent blood loss, the company pays a dividend yield at a more-than-respectable 5.2%, doling out $4 per share annually to loyal shareholders. But with two other big boys on the block reporting earnings in a couple of weeks, negative sentiment could take the shares lower.

I must disclose that I worked for a privately-held, for-profit school, only to have my position vanish into thin air one year after the hearings began. I’m doing okay (not as well as Eisman), and I don’t take things personal the way a lot of folks do; circumstances being what they are, good people and good companies are forced to make sacrifices. But when the space reeks of monkey business, I don’t need feces thrown at me to realize it’s not a place I want to invest my money. With the public, not-for-profit institutions capping enrollments, increasing tuitions at a higher clip than the inflation rate, and catering to a specific socioeconomic group, there is definitely a need the for-profit industry serves. But for the moment the publicly traded for-profit schools seem to be benefitting short-sellers more than anyone else.

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