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Turnaround in For-Profit Education Sector: 3 Stocks to Buy

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The for-profit education sector performed dismally the last couple of years on lower student demand, regulatory restrictions, serious threats to federal funding, intense scrutiny at all levels and a competitive environment.  

For-profit schools are much more expensive than a community college. The cost of education in a for-profit college can sometimes be almost double that of an education in a community college. The for-profit college industry includes companies like DeVry Education Group Inc. , Apollo Education Group, Inc. , Strayer Education, Inc. (STRA - Free Report) , Education Management Corporation and many more.

However, with an improving economic environment, job growth and a pick-up in consumer discretionary spending – albeit slow – the sector is seeing some improvement in demand.

Also, in order to boost enrolment growth, companies are offering scholarships to make their programs more affordable and attract the American masses to the campus.

With changing times, these companies are conducting ad campaigns, investing in digital capabilities and stepping up social media efforts to increase their brand value. The for-profits are also forging corporate and community college partnerships to educate their workforce. Also, companies are improving their technology and infrastructure, increasing investments to improve the academic quality and retain students, buying complementary businesses and regularly introducing new programs and specializations to boost student outcomes.

To improve profits, companies likeDeVry and Apollo Education have resorted to aggressive cost-cutting measures through significant layoffs and campus closings.

3 Stocks to Bet On

While the for-profits were almost written off not so long, a pick-up in demand in higher education has brought investor focus once again to the sector. We’ve zeroed in on three stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a Growth Style Score of ‘A’ or ‘B’ with the help of our new style score system.

The Growth Style evaluates corporate financial statements and analyzes growth prospects for a company. The financial health and strength of a company is determined by measuring aspects of the Income Statement, Statement of Cash Flows, and the Balance Sheet.

These companies have gained from improving enrollment trends, affordable tuition rates, strong cost management and operational efficiency. They have excellent prospects and might prove to be profitable for long-term investors.

Universal Technical Institute, Inc.

Scottsdale, AZ-based company carries a Zacks Rank #1 (Strong Buy) anda Growth Score 'A.’ Universal Technical is a leading provider of technician training in the fields of automotive diesel, motorcycle, marine and collision repair.

The company reported better-than-expected second-quarter fiscal 2015 results on Apr 30 fueled by rising demand for technicians. It has, in fact, delivered positive earnings surprises in the past four quarters. The company’s expected long-term EPS growth rate is 5%.

Grand Canyon Education, Inc. (LOPE - Free Report)

Phoenix, AZ-based postsecondary education service provider carries a Zacks Rank #2 (Buy) and a growth score of ‘A.’ It offers graduate and undergraduate degree programs in its core disciplines of education, business and health care through its eight colleges.

The company has delivered positive earnings surprises in the past four quarters with an average surprise of 8.13%.The company’s projected EPS growth rate is 13.08%, which is better than the industry growth rate. Its historical EPS growth rate, return on equity, current cash flow growth rate and historical cash flow growth rate are all far better than the industry averages.

Career Education Corp. (CECO - Free Report)

This Schaumburg, IL-based provider of private, for-profit post-secondary education carries a Zacks Rank #2 (Buy) and a growth score of 'A.’ Their schools offer a variety of master's degree, bachelor's degree, associate degree, and diploma programs in the fields of Visual Communication and Design Technologies, Information Technology, Business Studies and Culinary Arts.

The company has delivered an average positive earnings surprise of 7.52% in the past four quarters.The company’s projected EPS growth rate is 53.54%, which is significantly better than the industry growth rate. The current ratio of 1.80 is also better than the industry.

To Sum Up

President Obama has also been taking steps to make education more affordable, which could reinvigorate student demand. He has been working to provide the tools, access and opportunity for low-income students to pursue higher education.

In the past, the President increased Pell Grants (a federal student financial aid) and education tax credits; improved transparency; proposed reforms that would allow students to cap repayment of their loans at 10% of their monthly income; proposed relaxing bankruptcy’s standards for student-loan discharges and tried to keep interest rates on Federal student loans low.

Now with the economy on the mend, the for-profit institutions are expected to see more enrolments as affordability, a key issue in this sector, improves. This means more profits and deeper pockets for these companies.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Strategic Education Inc. (STRA) - free report >>

Career Education Corporation (CECO) - free report >>

Grand Canyon Education, Inc. (LOPE) - free report >>