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Bear of the Day

Though Capella Education Co's (CPLA) first quarter 2012 earnings of $0.82 per share beat the Zacks Consensus Estimate, it dropped 15% from the prior-year quarter due to top-line weakness. Total revenues fell 1.8% due to a decline in new enrollments.

The company has been witnessing volatile enrollment growth since the last few quarters due to challenging market conditions. The company's brand-driven marketing strategy is not leading to a desired improvement in enrollments. Increased marketing spend associated with the strategy also remains a drag on margins.

The company provided a weak near-term enrollment outlook, forcing us to reduce our estimates for both 2012 and 2013. Moreover, the highly regulated nature of post-secondary education in the US also remains a consistent overhang. We have therefore downgraded our rating on the stock from Neutral to Underperform.

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