Oh, how the mighty have fallen.
Once upon a time in America, a group of companies became the darlings of Wall Street. Bearing names like Laureate Education (Nasdaq: LAUR ) , Corinthian Colleges (Nasdaq: COCO ) , StrayerEducation (Nasdaq: STRA ) , and Universal Technical Institute (NYSE: UTI ) , the for-profit educators stormed the investing stage in the twilight of the 20th century and the dawn of the 21st.
While the industry had its disappointments, such as the laggard DeVry, which during one 10-year stretch rose "only" 40 times in value, it also had its success stories -- notably Career Education (Nasdaq: CECO ) , whose stock grew 400 times. But the run of good fortune ended in disaster, as complaints mounted that the industry used abusive marketing tactics and misrepresented students' chances of getting a job upon graduation, all to further maintain this remarkable growth. The crisis came to a head in February 2004, when ITTEducational Services (NYSE: ESI ) was actually raided by federal agents seeking evidence of the alleged abuses.
Since the dark days of February 2004, things have gotten better for the industry, as all but one of its members (Career Education) emerged from under the storm clouds of federal investigation. Indeed, ITT's stock trades about $10 higher today than it did on the day of the raid. Nor did the storm clouds entirely wash away the previous decade's stock price gains. Over the past five years, only one of the above-named companies has underperformed the S&P 500 (DeVry -- and it's now an acquisition target). And five of the eight major for-profit educators still trade for two and three times their August 2001 prices.
Back to school?
That said, the past year has not been kind to the industry. Six of the Great Eight are either pacing the S&P 500 or underperforming it. In these last few weeks of summer, as our Foolish mailboxes are bombarded with back-to-school sales fliers, our Foolish minds ponder the possibilities that the for-profit educators might themselves be on sale.
Over the next four days, we'll study this hypothesis more closely and see if we can't stick a "Q.E.D." on one or more of these stocks. In today's installment of our back-to-school series, we look at the "geeks" of the industry -- the ones best resembling the traditional, not-for-profit colleges that we remember so fondly from our youth. Friday, we'll turn to vo-tech. Monday, we'll bring the whole class back together for a study session and see which companies made the grade. Finally, on Tuesday, join us for an elective survey course on some related players.
Open your textbooks to the giant of the industry: Apollo Group (Nasdaq: APOL ) . If Mr. Market plays the stern instructor to this industry, then Apollo is clearly the teacher's pet; its nearly $8 billion market cap exceeds the value assigned to the next three biggest players combined. This, despite the fact that Apollo books just $400 million more in revenues than the next-biggest seller (Career Education.)
But let's not get ahead of ourselves. Today and Friday, we're just taking roll. We'll save the numbers, the testing -- and the grading -- for Monday. Proceeding with the introductions:
- Business: Apollo operates 97 campuses and 159 "learning centers" (classroom facilities with limited on-site administration) in 39 states, Puerto Rico, two Canadian provinces, the Netherlands, and Mexico. Through its University of Phoenix, Western International University (WIU), and graduate programs at its College for Financial Planning, it offers everything from associate to doctoral degrees (in some subject matters) in fields of study such as business, education, and information technology. It also offers distance learning (remote, via the Internet), primarily through WIU's Axia College and University of Phoenix Online. Of all the for-profit educators, Apollo's curricula seem the most "white collar." Indeed, in an interview we conducted with former CEO Todd Nelson earlier this year, Nelson distinguished Apollo's courses from the competition by arguing that they operated mainly "vocational/technical schools," in contrast to Apollo's more academic programs.
- Demographics: Two-thirds of Apollo's 307,000 degree-seeking students are under age 40, and most are working adults; 84% pursue bachelors or graduate degrees.
- Representative degree programs: Bachelor's degrees in business, information technology; M.B.A.; master's degrees in information systems, education; doctorates in business, education.
Strayer is easily the oldest kid in our classroom by a few decades, having been founded way back in 1892. (Subscribers to the Motley Fool Hidden Gems newsletter will also recognize Strayer as a recurring visitor to our stock Watch List.)
- Business: Strayer operates 43 campuses in 10 states and the District of Columbia. The firm specializes in business and technical coursework, but also offers degree programs in education and public administration. Strayer was the one firm with which Nelson admitted to competing -- "on a limited basis." (It's not surprising, though, that Nelson wouldn't want to give Strayer too much credit; Strayer's $242 million in annual sales are only a tenth the size of Apollo's business.) Also like Apollo Group, Strayer has taken note of online education's potential. This segment is now showing the company's fastest growth.
- Demographics: Sixty-one percent of Strayer's 27,000 students are over age 30; 84% of all students pursue bachelor's or graduate degrees.
- Representative degree programs: Associate degrees in computer networking, database technology, accounting; bachelor's degrees in accounting, international business; M.B.A.
Reading through Laureate's 10-K gives one the distinct impression that this is what George W. Bush would like America's entire educational system to look like, if he had his druthers: high quality, for a market price. The only thing is, Laureate is in America pretty much in name only: It does essentially all of its business overseas.
- Business: Laureate operates a network of for-profit campus-based and online universities overseas, with 24 institutions operating 51 campuses in Asia, Europe, and the Americas.
- Demographics: Most of Laureate's 226,000 students are of what we in the U.S. would consider a "typical" age for a college student: 18 to 24. Most of these students (170,000) are in Latin America; the next-largest division, 27,000 strong, is online, and this division includes U.S. students. In third place comes the European division, with 20,000 students.
- Representative degree programs: Laureate best resembles the traditional universities of the U.S., offering a wide range of undergraduate and graduate degrees running the gamut from business, hotel management, and information technology, to medicine, dentistry, law, and engineering. The breadth of Laureate's course offerings, as well as its geographic locale, lead the firm to state in its 10-K that: "The company believes that no other company has a similar network of international higher education institutions."
And so ends our introduction to the most traditional providers of this untraditional form of education. Class resumes Friday as we turn our attention to the "vocational/technical schools." Wear jeans and sturdy shoes.
None of the three "white-collar" schools has earned a slot among the official picks at Motley Fool Hidden Gems. Apollo and Laureate are too big for our small-cap focus, but Strayer still has a shot. Find out what price we'd think is nice when you read Jim Gillies' detailed analysis of Strayer's valuation -- access included gratis when you try out the service. Claim a free trial here.