Shares of Career Education Corp. surged nearly 14 percent Thursday after the for-profit education provider’s earnings beat Wall Street estimates. However, multiple analysts remained neutral or negative on the stock due to concerns about the impact of regulatory changes on the company’s future.
Sterne, Agee & Leach analyst Arvind Bhatia said Career Education’s earnings were impressive, but he is concerned about a U.S. Department of Education proposal to link student loans to the likelihood of gainful employment. He also noted possible problems with accreditation at the company’s school, American InterContinental University.
"These concerns are not about things that are immediate, but more likely are possible six or seven months away," Bhatia said, maintaining an "Underperform" rating. "The stock movement today is about the earnings."
FBR Capital Markets analyst Matt Snowling also reiterated an "Underperform" rating despite the strong results and better-than-expected student starts. He too pointed to ongoing accreditation issues related to American Intercontinental University as well as regulatory pressure on tuition pricing, and rising student acquisition costs.
Career Education said Wednesday its earnings slipped 2 percent to $30.7 million, or 36 cents per share, for the fourth quarter. Revenue rose 19 percent to $507.8 million from $425.3 million led by increases in its university, culinary arts, health education and other programs.
The results topped the average forecast for earnings of 34 cents per share on $496.8 million in revenue expected by analysts polled by Thomson Reuters.
New student starts in 2009 rose 18 percent to 28,440 from 2008, with online new student starts up 25 percent to 15,280. As of Jan. 31, the company’s student population totaled 116,800, compared with 96,600 a year earlier.
Career Education shares gained $3.13 to finish at $26 Thursday as trading volume more than tripled.
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