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ITT Shuts Down: For-Profit Education Stocks in Trouble?
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The for-profit college chain ITT Educational Services, Inc. announced the closure of all of its ITT Technical Institutes campuses, stranding about 45,000 students and 8,000 employees just when fall classes were about to begin.
The shutdown of IIT's 130 campuses across 38 states closely followed the U.S. Education Department’s decision to ban ITT from enrolling new students who resort to federal financial aid.
Operating for 50 years, ITT has been monitored by federal and state regulators. The organization has faced a slew of lawsuits including accusations like mismanagement of finances and questionable recruiting tactics.
ITT officials hold the Department of Education responsible for its closure on what it called unwarranted federal action. ITT said, “the actions of and sanctions from the U.S. Department of Education have forced us to cease operations of the ITT Technical Institutes.” It also added that it has “exhausted the exploration of alternatives, including transfer of the schools to a non-profit or public institution,” and has no other way out but to close its Technical Institutes.
Meanwhile, the New York Stock Exchange announced that it would start proceedings to delist ITT’s stock and suspended trading immediately.
What Does the Closure Mean for the Sector?
The ITT shutdown follows years of complaints from consumers, stringent regulatory scrutiny and declining enrollment. Further, several for-profit colleges are presently grappling with issues like government investigations and complaints from students.
Corinthian Colleges Inc. also closed last year after facing charges for using inflated job placement and graduation rates to trap students. Again, earlier this year, the Federal Trade Commission or FTC announced a lawsuit against DeVry University, DeVry Education Group, Inc.’s (DV - Free Report) largest unit, challenging the employment potential of its graduates. As per the FTC, DeVry University resorted to deceptive advertisements which promise great income prospects to its graduates.
The series of closures make it clear that educational institutions can no longer get away with making hollow promises or gain students through dubious means.
Again, lower enrollment level has been a pressing issue for long. Though the employment scenario has improved overtime, wages are still low. Thus, students will soon realize that better educational qualification and skills will improve their job prospects in the years to come.
Schools with Promising Performances
Meanwhile, a few for-profit schools like Capella Education Company are thriving, beating estimates on both counts in the second quarter of 2016. The company, with a Zacks Rank #3 (Hold), recorded a year-over-year increase in earnings per share and revenues, driven by positive enrollment levels recorded at Capella University. The enrollment increase was at the higher end of the company’s expectation, driven by strong enrollment trends in master's programs, partially offset by enrollment decline in doctoral and bachelor's programs.
Again, Zacks Rank #3 company DeVry Education Group reported robust fourth-quarter fiscal 2016 results last month, surpassing the Zacks Consensus Estimate for both sales and earnings, for the second quarter in a row.
A leading provider of career-oriented post-secondary education, Lincoln Educational Services (LINC - Free Report) also surpassed estimates in three out of the past four quarters, resulting in an average positive surprise of 58.14%. The company has been able to reduce its bad debt expense as a result of improved historical collection rates and a shift in student mix. In fact, it expects cash position as of 2016-end to be in excess of its term loan repayment obligation. In the first half 2016, net loss from continuing operations narrowed by 36.5% year over year for this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Grand Canyon Education, Inc. (LOPE - Free Report) , a regionally qualified provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business and healthcare, also reported upbeat second-quarter results. This Zacks Rank #3 company’s net revenues and enrollment increased 9.5% and 7.1% year over year. Quarterly EPS also improved 7.3%, courtesy of higher revenue and operating income.
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You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>
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ITT Shuts Down: For-Profit Education Stocks in Trouble?
The for-profit college chain ITT Educational Services, Inc. announced the closure of all of its ITT Technical Institutes campuses, stranding about 45,000 students and 8,000 employees just when fall classes were about to begin.
The shutdown of IIT's 130 campuses across 38 states closely followed the U.S. Education Department’s decision to ban ITT from enrolling new students who resort to federal financial aid.
Operating for 50 years, ITT has been monitored by federal and state regulators. The organization has faced a slew of lawsuits including accusations like mismanagement of finances and questionable recruiting tactics.
ITT officials hold the Department of Education responsible for its closure on what it called unwarranted federal action. ITT said, “the actions of and sanctions from the U.S. Department of Education have forced us to cease operations of the ITT Technical Institutes.” It also added that it has “exhausted the exploration of alternatives, including transfer of the schools to a non-profit or public institution,” and has no other way out but to close its Technical Institutes.
Meanwhile, the New York Stock Exchange announced that it would start proceedings to delist ITT’s stock and suspended trading immediately.
What Does the Closure Mean for the Sector?
The ITT shutdown follows years of complaints from consumers, stringent regulatory scrutiny and declining enrollment. Further, several for-profit colleges are presently grappling with issues like government investigations and complaints from students.
Corinthian Colleges Inc. also closed last year after facing charges for using inflated job placement and graduation rates to trap students. Again, earlier this year, the Federal Trade Commission or FTC announced a lawsuit against DeVry University, DeVry Education Group, Inc.’s (DV - Free Report) largest unit, challenging the employment potential of its graduates. As per the FTC, DeVry University resorted to deceptive advertisements which promise great income prospects to its graduates.
The series of closures make it clear that educational institutions can no longer get away with making hollow promises or gain students through dubious means.
Again, lower enrollment level has been a pressing issue for long. Though the employment scenario has improved overtime, wages are still low. Thus, students will soon realize that better educational qualification and skills will improve their job prospects in the years to come.
Schools with Promising Performances
Meanwhile, a few for-profit schools like Capella Education Company are thriving, beating estimates on both counts in the second quarter of 2016. The company, with a Zacks Rank #3 (Hold), recorded a year-over-year increase in earnings per share and revenues, driven by positive enrollment levels recorded at Capella University. The enrollment increase was at the higher end of the company’s expectation, driven by strong enrollment trends in master's programs, partially offset by enrollment decline in doctoral and bachelor's programs.
Again, Zacks Rank #3 company DeVry Education Group reported robust fourth-quarter fiscal 2016 results last month, surpassing the Zacks Consensus Estimate for both sales and earnings, for the second quarter in a row.
A leading provider of career-oriented post-secondary education, Lincoln Educational Services (LINC - Free Report) also surpassed estimates in three out of the past four quarters, resulting in an average positive surprise of 58.14%. The company has been able to reduce its bad debt expense as a result of improved historical collection rates and a shift in student mix. In fact, it expects cash position as of 2016-end to be in excess of its term loan repayment obligation. In the first half 2016, net loss from continuing operations narrowed by 36.5% year over year for this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Grand Canyon Education, Inc. (LOPE - Free Report) , a regionally qualified provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business and healthcare, also reported upbeat second-quarter results. This Zacks Rank #3 company’s net revenues and enrollment increased 9.5% and 7.1% year over year. Quarterly EPS also improved 7.3%, courtesy of higher revenue and operating income.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>