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5 Stocks to Buy in DeVos' For-Profit Education Regime

Shrabana Mukherjee
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For-profit education stocks have received a strong lift from the Trump wave that has boosted the broader market. Sector leaders Adtalem Global Education Inc. ATGE formerly known as DeVry, Grand Canyon Education, Inc. LOPE and Strayer Education, Inc. STRA have each outperformed the S&P 500 since Trump’s election.

President Donald Trump’s appointment of Betsy DeVos as the Secretary of Education was a big reason for choosing to invest in for-profit education stocks. She is widely considered the most business-friendly person to hold the position since the Department of Education was created by Jimmy Carter in 1979.

Will 2018 Shower Fortunes on For-Profit Colleges?

The Trump administration is set to revise for-profit education industry regulations, as announced by the U.S. Department of Education last year. The department intends to bring about changes to the Borrower Defense to Repayment (BDR) and Gainful Employment (GE) system, introduced during Obama’s reign.

DeVos seemed to have responded according to investors’ plans. She has delayed the implementation of gainful employment rules, withdrawn key federal student loan servicing reforms, and signaled a less-arduous regulatory environment for the industry. A gainful employment rule is aimed at ensuring that a program offered by an educational institution leads to “gainful employment in a recognized occupation.” If the loan repayment amount is more than a certain percentage of the students’ income, the program will not be eligible for federal aid. She withdrew important federal student loan servicing reforms that make it easier for college students to have loans discharged when they’ve been defrauded by schools.

Meanwhile, DeVos recently made it clear that her top priority is expanding alternatives to traditional public schools. She defends her decision to relax a number of Obama policies in an effort to keep for-profit schools an option for non-traditional students. However, many industry pandits claim that it will trap students with false promises, burdens them with debt and finally leave them without any skills required to secure decent jobs.

Among other provisions drafted by the Trump administration, the House’s recent draft bill proposes to undo the “90/10” rule introduced by the Obama administration, which requires for-profit institutions to earn at least 10% of their revenues from sources other than federal financial aid. If graduates fail to find employment enough to pay back their student debt, colleges can still profit on loans backed by the federal government. The Obama-era Department of Education required for-profits to show enough employment numbers to remain eligible for federal aid.

For-profit education companies are poised to surge given the friendly approach of the Trump administration toward these companies.

Encouraging Programs to Drive Enrollment

Apart from the much-needed regulatory support, industry giants are finding innovative ways to compete in an increasingly competitive education landscape and deliver returns to shareholders. In order to boost growth, school companies have resorted to aggressive cost-cutting measures through significant layoffs and campus closings.

For-profit education companies are investing in digital capabilities and stepping up social media efforts to increase their brand value as well as boost enrolment growth. The for-profits are also forging corporate and community college partnerships to educate their workforce. Additionally, 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.

Investors are also taking notice of the positive changes in the industry and for-profit school stocks are getting a strong boost under Trump's presidency and DeVos’ control. The Zacks School Industry has rallied 28.3% in the past year, outperforming the S&P 500’s gain of 10.5%. The industry has every reason to celebrate as it appears to have received everything it had lobbied for.

5 Stocks to Bet On

With the help of the Zacks Stock Screener, we have handpicked five stocks from the industry based on a good Zacks Rank and other relevant metrics that are reaping the benefits of the current mixed scenario and have the potential to grow.

American Public Education, Inc. APEI is an online provider of higher education focused primarily on serving the military and public service communities.

Shares of American Public Education have returned almost 70% in the last year, outperforming its industry’s growth of 28.3%. In the last 30 days, the Zacks Consensus Estimate for earnings increased 40.49% for 2018 and 35.5% for 2019. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #1 (Strong Buy) for the stock.

Grand Canyon Education is a provider of online postsecondary education services. Shares of Grand Canyon have returned 46% in the past year, outperforming its industry.

The earnings momentum of Grand Canyon Education is likely to continue in the near term, as reflected by the company’s expected EPS growth of 18.7% for the current year. Revenues are expected to grow 8.3% this year. In the last 30 days, the consensus estimates for earnings increased 3.8% for 2018 and 3.6% for 2019. Grand Canyon Education sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bright Horizons Family Solutions Inc. BFAM provides employer-sponsored child care, early education and work/life solutions.

Shares of Bright Horizons, a Zacks Rank #2 stock, have returned more than 35% in the last year, outperforming its industry. The company’s earnings are expected to grow 16.7%, while revenues are expected to improve 8.8% this year. In the last 60 days, the consensus estimates for earnings inched up 4.3% for 2018 and 4.4% for 2019.

K12 Inc. LRN, a technology-based education company, has declined almost 23% in the past year. However, the stock currently carries a Zacks Rank #2 and a VGM Score of A. The stock has seen its earnings estimates grow 4.9% for the current year and 3.5% for the next, over the past 60 days. K12’s earnings are expected to grow 42.2% this year.

Capella Education Company CPLA provides online post-secondary education services in the United States, focused primarily on working adults. Shares of Capella have gained only 0.9% in the past year. However, Capella’s earnings are expected to grow 23% this year. The stock has seen its earnings estimates grow 12.8% for the current year and 2.7% for the next, over the past 30 days.

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