Will Bridgepoint Be the Next Corinthian or the Next Grand Canyon?

Bridgepoint Education  (NYSE: BPI  ) is at a crossroads of challenges and opportunities. It is facing government regulatory pressures like its competitor Corinthian Colleges  (NASDAQ: COCO  ) . But Bridgepoint could attract more applicants to its schools following a marketing and branding push that just started, a strategy successfully implemented by Grand Canyon University  (NASDAQ: LOPE  ) . If Bridgepoint can address its regulatory challenges and take advantage of its applicant growth, it could be an attractive investment opportunity. However, Grand Canyon -- with a proven strategy and better financials -- is the best long-term investment out of all three.

The curious case of Bridgepoint Education
Bridgepoint Education recently suffered large declines in enrollment after dramatic growth between 2009 and 2011.

Year end

Year end enrollment

% change from last year

2013

63,624

-22.22%

2012

81,801

-5.59%

2011

86,642

11.23%

2010

77,892

45.08%

2009

53,688

70.12%

Source: Bridgepoint Education 

On its May first-quarter 2014 earnings call, CEO Andrew Clark said that 63,624 students were enrolled at the end of the quarter, roughly equal to the 2013 year-end enrollment, while applications had increased by 11%. Its 12-month student retention improved as it retained 64.5% of students compared to 61.6% in the same period last year. Clark added that he expects a turnaround in the second quarter and that the increase in new enrollments -- driven by the growth in new applicants -- and the increased student retention will result in improved financial performance for the rest of the year.

Bridgepoint is making a marketing push to attract more applicants. It spent $7.3 million on additional branding related to new television ads and placements for the quarter, which included airing ads during the 2014 Winter Olympics. It recently renamed its business school the Forbes School of Business at Ashford University. Clark was confident that all of this marketing and branding activity would continue to drive applications since the TV ads covering the renamed business school started in late February. 

However, Bridgepoint acknowledged challenges with the SEC in getting its 10-Q filed -- a bad sign. The SEC wanted to further review Bridgepoint's revenue recognition and doubtful accounts policies. How Bridgepoint will resolve the SEC review remains to be seen.

Corinthian Colleges concedes?
Comparatively, Corinthian has the look of defeat. Its trouble with the Department of Education, or DOE, has led to its sale of 85 campuses and its closure of 12 others.

Since the start of the year, the DOE has sent the school five letters that requested data and other documents, with a focus on Corinthian's dropout rates, student-loan default rates, and marketing of its job-placement rates.  Corinthian failed to respond adequately to the letters, according to the DOE. The school's non-response led to the DOE's decision to limit Corinthian's access to federal funds. This put Corinthian into a crisis, as it receives $1.4 billion annually from federal funds, or 80% of its revenue.

As part of the agreement with the DOE for $16 million in emergency interim funds to continue its operations, Corinthian agreed with the DOE to sell many of its schools and close up others. However, after it announced that it would sell many of its campuses and close many of the others, Corinthian Colleges looks like a class dismissed.

How the Grand Canyon got that way
In contrast to Corinthian with the DOE and Bridgepoint with the SEC, Grand Canyon has not come under regulatory pressure. Grand Canyon has been focused on marketing, branding, getting better students, and increasing enrollment.

On Grand Canyon's April first-quarter earnings call, CEO Brian Mueller said the GPA's of next year's incoming new students were above 3.5. The school's enrollment is up 15%. In the spring semester 90% of its non-graduating fall students come back. And on top of that its graduates are successful--for example, 75% of Grand Canyon's premed students get into a graduate program, compared to a national average of 42%.

Grand Canyon has also marketed itself through other means outside of television and other traditional avenues. Its theater and arts program put together five major productions that have won local awards and appeared on local news multiple times. While Grand Canyon's athletic teams were expected to be at the bottom of their conference, its teams made a splash in their first year -- its women's track team won the Western Athletic Conference, or WAC, and its men's track team placed second. Its Women's softball team won the WAC regular season.

Grand Canyon's executives see a promising future. It currently has a ground enrollment of over 9,500 students and projects ground enrollment of 17,000 by 2016. It is building new dorms in anticipation of a larger student body.

Bridging the differences
Below is a table of select financial and investment measurements for all three schools:

 

Bridgepoint

Corinthian Colleges

Grand Canyon

Market Cap

$606.79 million

$24.89 million

$2.15 billion

PEG Ratio (5-yr expected)

2.74

0.028

2.12

Price/Book

1.7

0.02

5.58

Return on Equity

2.22%

-15.07%

29.42%

% held by insiders

2.14%

7.89%

8.71%

From Yahoo! Finance

While Bridgepoint does better than Corinthian Colleges, it trails Grand Canyon on many of the management performance measures -- price/book; return on equity; and percentage held by insiders. Even Bridgepoint's PEG ratio indicates that it is pricier than Grand Canyon. If Bridgepoint can successfully execute its turnaround, its future performance measurements will eventually improve.

Bridgepoint has the opportunity to resolve its regulatory challenges and take advantage of higher applicant numbers -- promising signs for the school. While it is premature to say that Bridgepoint has turned the corner, it has the potential to become a worthy investment. However, Grand Canyon has already shown that it can execute a proven strategy and achieve measurements for success. As a long-term investment, Grand Canyon is the one that makes it to the honor roll. 

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