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Why Grand Canyon Education Stock Dropped Today

By Joe Tenebruso - Updated Nov 7, 2019 at 1:22PM

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The education services company could be hampered by stricter regulations.

What happened

Shares of Grand Canyon Education (LOPE 6.91%) fell sharply on Thursday following the release of the company's third-quarter results and subsequent conference call. As of 1:50 p.m. EST, the stock was down 8%.

So what

Grand Canyon Education's revenue rose 24% year over year to $193.3 million, driven primarily by its acquisition of healthcare education services company Orbis Education in January.

The company's profits also increased at a solid clip. Grand Canyon's non-GAAP (adjusted) operating income climbed 19% to $65.9 million, while its adjusted net income came in at $59.9 million, or $1.24 per share. That was above Wall Street's estimates for adjusted EPS of $1.15.

However, investors appear to be focusing more on news that Grand Canyon University (GCU), for which Grand Canyon Education provides support services, will continue to be treated as a for-profit entity for purposes of its participation in federal financial aid programs by the U.S. Department of Education. As a result, Grand Canyon University will be subject to regulations that require it to meet stricter standards for financial aid and graduate employment.

A person pointing to a declining stock chart.

Image source: Getty Images.

Now what

Grand Canyon Education Chairman and CEO Brian Mueller said during a conference call with analysts that he hasn't yet had time to review the Education Department's reasoning for treating GCU as a for-profit entity but that the university would likely challenge the decision. Mueller also said that the stricter for-profit regulations would likely have little impact on the university's operations.

Investors, however, appear to be somewhat concerned with the Education Department's ruling, and some are choosing to sell their shares of Grand Canyon Education today.

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