Capella Enrollment and Earnings Jump as Students Continue to Flock Online

Crediting "a slight tailwind from the economy" with driving increased undergraduate enrollment, Capella Education Co. officials are reporting a 32 percent jump in total enrollment to nearly 39,000 students.

That, in turn, drove 31 percent revenue growth to $105.2 million for the second quarter, compared with a year ago, for its wholly owned online subsidiary, Capella University.

Better-than-expected revenue performance — paired with a positive earnings surprise of $14.6 million, up 54 percent, or 86 cents a share — fueled Capella stock to close the day at $94.56. That’s up $3.48, or 3.82 percent, on 446,000 shares trades, more than twice the daily average.

While the Minneapolis-based company focuses on mid-career graduate and professional programs, it has also seen booming undergraduate enrollment driven by high unemployment, company officials said. Graduate enrollment increased 26.7 percent to just over 30,000.

CEO Kevin Gilligan told analysts and investors in a call Tuesday that Capella is benefiting as the market transitions from “on-ground to online education” by introducing new graduate degree programs targeted at working adults looking to enhance their earnings power. He also said that Capella’s “brand reputation” for high-quality graduate-level education is helping drive enrollment growth.

Capella “continues to be a very strong operating-margin expansion story,” observed R.W. Baird analyst Amy Junker, out of Milwaukee, who has rated the stock “outperform” since she launched coverage in 2007.

The highly fragmented for-profit education market is estimated at just under 1.7 million students, about one-10th the size of the nonprofit higher-education segment. Capella has about a 2 percent share, according to U.S. Department of Education statistics.

Junker’s “gut feel” is that it will continue to gain share by focusing on graduate-level education because Capella “fills a unique niche in the for-profit space.”

New proposed rules issued Friday by the Department of Education require for-profit career colleges to better prepare students for "gainful employment" or risk losing access to federal student aid.

Junker said the new rules should have “limited to no impact” on Capella because their students tend to be “working adults and savvy consumers” who are, for the most part, already working while taking courses. In addition, Capella students typically have lower student loan default rates than the student population as a whole, another factor considered under the new rules, company officials told analysts.

Gilligan reported that the company is “very confident” in its goals of 18 to 22 percent annual revenue growth and operating income growth of 30 percent through 2011. With $192 million in cash and no debt, the company also will look to invest in acquisitions and new learning technologies and in adding program offerings in areas that Capella currently does not serve, Gilligan said.

Earlier this year, Capella offered adjunct professors the chance to apply for employment, which more than doubled its full-time faculty to nearly 300, Gilligan reported.

Minnesota Post

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