Education Stocks In The Age Of Trump

Reports of abuse among for-profit colleges have been plentiful, alarming and amply documented. But in contrast to the apparent views of some, I do not see this as a clarion call for destruction of the sector any more than early abuses in the manufacturing sector (filthy, unsafe conditions, onerous working hours, child labor, etc.) were a call for cancellation of the industrial revolution.

See problems. Fix problems. We’ve done that before. I think we’ll do it again with education. For investors, I’ll expand it a bit: See problems. Fix problems. Own shares of companies likely to be part of the solutions.

DeVry (DV) as Part of the Solution

Admittedly, it requires something of a gulp to type a heading like that given that DV is an established name in this area and, not surprisingly, has experienced legal issues and consequences, both in the legal-regulatory arena and in the marketplace. The good news, if you want to label it such, is that it hasn’t been nearly as severe here as with others, and the company remains in existence--not all can say that. Moreover, DV has settled with the FTC regarding some advertising practices.

There may still be potential bad headlines since DV believes it has some vulnerability under new regulations governing the relationship between student debt and earnings. But it does not appear to impact more than a small portion of the company’s offerings. The biggest challenges going forward for the new CEO who took the helm in 2016 may be in the marketplace, and to the extent image is reality, the classroom.

The company’s namesake DeVry institution competes directly with community colleges many of which are public and hence able to offer lower tuition than can DV. One might assume DV is for those who can’t get into community colleges. There is likely to be some truth to this, but not 100%. Community colleges, in many cases just a step above high school, often have schedules that reflect this sort of heritage. In other words, they may not be quite as able as an institution like DV to accommodate the varying “delivery” needs of non-traditional students (i.e. working-age adults). DV’s Caribbean-based medical and dental schools are in similar situations. And there is often an unfavorable image that can be associated with non-U.S. medical education.

I’m not able to say what’s true and what’s not with regard to education quality. Ultimately, though, an investment case for DV isn’t really based on what the business or company is today. It’s about where one thinks it will go. As explained above, I believe the field will change a lot. DV’s place in it may be influenced by its stature as a survivor and it’s has broad wings, evident  in how it has stretched beyond traditional community-college-type to other areas; medical and veterinary school, nursing school (an area of current strength), a Brazilian branch, and high-level test prep (via Becker, which provides test prep for the CPA exam).

LOPE is a completely different animal within the world of for-profit-education. It’s a regular university; with a campus (in Phoenix – and no it’s not THAT University of Phoenix), student activities and even NCAA athletics. It’s a Christian-themed university that started from a Baptist background but which has by now become interdenominational. I’m not sure, in today’s political climate, what kinds of associations pro or con that may have for some, but I suggest investors take this off the table and think of LOPE as a serious educational institution (there’s ample precedent of serious universities that have religion-based heritages).

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