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COCO - Corinthian Colleges Inc


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What is COCO?

 

Corinthian Colleges, Inc., a post-secondary education company, provides various diploma programs, as well as associates, bachelors, and masters degrees in the United States and Canada. Its diploma curricula include medical assisting, medical insurance billing and coding, massage therapy, dental assisting, pharmacy technician, medical administrative assisting, automotive and diesel technology, HVAC, surgical technology, plumbing, electrical, nursing, electronics, and computer technology programs. The company's degree curriculum comprises business administration, criminal justice, medical assisting, accounting, paralegal, marketing, computer information technology, legal assisting, hospitality management, court reporting, applied service management, and film and video programs. It also offers masters degree in business administration and criminal justice. In addition, the company provides online learning to the students pursuing education through online. As of June 30, 2009, the company operated 89 schools in 24 states, and 17 schools in the province of Ontario, Canada under Everest and WyoTech brands. Corinthian Colleges, Inc. was founded in 1995 and is based in Santa Ana, California.

 

-From Yahoo! Finance

 

This company is in serious trouble which is a beautiful thing if you are a Benjamin Graham acolyte:

 

http://seekingalpha.com/news-article/53058-sector-snap-shares-of-for-profit-schools-tumble

 

Shares of Corinthian Colleges Inc. fell more than 11 percent, hitting a new 52-week low, after a downgrade from UBS. The company said that it may have to raise tuition or risk violating government rules on how much of its revenue can come federal financial aid. It also expects a big drop in new student enrollments.

 

The question is will impending fines, penalties and stifling regulation permanently impair this company at these fundamental levels?

 

http://www3.valueline.com/vlquotes/quote.aspx

 

http://financials.morningstar.com/valuation/price-ratio.html?t=COCO&region=USA&culture=en-US

 

Despite a recently successful turnaround, Corinthian Colleges once again faces challenges. Increased regulatory oversight threatens to limit growth in the for-profit education sector. But even without these concerns, Corinthian is having trouble meeting the current regulatory standards.

 

With the kinds of numbers listed below, it would take liquidation for the price levels to remain at or below current levels for the next 3 - 5 years:

 

P/E  2.41

EPS (ttm) 1.65

Market Cap  350.15M

Forward P/E  4.96

EPS next Y 0.80

Income  145.97M  

PEG  0.18

EPS next Q  0.39

Short Float  25.17%

Sales  1.76B

P/S  0.20

EPS this Y  102.47%

Book/sh 7.84

P/B 0.51  

ROA 13.34%

Cash/sh 2.37

P/C 1.67

EPS next 5Y  13.33%

ROE  24.15%

P/FCF 2.90

 

-via finviz

 

The risk seems to be outweighed by the reward on this one.

 

What say you?

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  • 4 weeks later...

The federal governments regulation of the sector may permanently impair their revenues.  The question is who in the sector will survive given that scenario? (I might add that this sector sorely needs to be regulated.  Most often the taxpayers wind up paying the tab for these for-profit schools.)

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The federal governments regulation of the sector may permanently impair their revenues.  The question is who in the sector will survive given that scenario? (I might add that this sector sorely needs to be regulated.  Most often the taxpayers wind up paying the tab for these for-profit schools.)

 

From some light reading about the overall sector, I have been looking at ESI (ITT Educational Services).  They report higher graduation rates than others - and the grad rates are getting increasing scrutiny from government funders, or at least from the media reports.  Current (ttm) and forward P/E in the 5.5 range.  Under the Investment Ideas section of the board, see http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3159.0  (Disclaimer: not yet holding anything in this sector.)

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The entire sector is under huge pressure and deservedly so.  Many for-profit schools provide a poor level of service at an exaggerated price to the uneducated public that needs to be supported by federal loans that they can't afford to pay back.

 

However in the midst of all this predatory behaviour, there are a few schools that are conscientious and provide their clients a valuable service.  I do not know that COCO falls into that category, but I am convinced that ESI does.  The troubles being experienced by APOLO (the biggest player in the market) will provide opportunities for the conscientious players.

 

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The entire sector is under huge pressure and deservedly so.  Many for-profit schools provide a poor level of service at an exaggerated price to the uneducated public that needs to be supported by federal loans that they can't afford to pay back.

 

However in the midst of all this predatory behaviour, there are a few schools that are conscientious and provide their clients a valuable service.  I do not know that COCO falls into that category, but I am convinced that ESI does.  The troubles being experienced by APOLO (the biggest player in the market) will provide opportunities for the conscientious players.

 

 

Part of the "huge pressure" also seems to be incredibly high short ratios.  Is the number of shares short (on a number of players in this sector) more than what might reasonably be explained?

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I was looking at taking a position in Apollo, but after reading Steve Eisman's short thesis on the sector I decided against it.

 

Less than 10% of revenue goes toward actual education expenses, the education is more expensive than average private college tuition (after taking out room & board), drop out rates are terrible, default rates are high, for-profit executives sit on the accreditation boards, for-profit colleges account for 9% of total schools but 26% of Title IV financial aid, and the federal government is looking to cut the deficit.

 

These companies could get absolutely CRUSHED with one swipe of Obama's pen. This does not mean they cannot stay in business - they could serve a highly important role in improving the education level of Americans with a FRACTION of what they take in for funding.

 

APOL trades at 10X LTM earnings, but 20X if earnings are cut in half - not a value investor's ideal risk reward scenario. I'd rather go buy McDonalds at 17X LTM earnings with a 5% dividend/buyback yield, enormous pricing power, huge growth potential in China, and IMO deserving of a 25X multiple.

 

Just my humble opinion.

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I agree with her 100%. The issue for me is the names I know in for profit add little to no value, consume resources, and are basically direct transfers from tax payers to investors / Management. I thought so at 19 when some friends were trying to go to some because they were too lazy too go to a real school.

 

With that said thats one boys anecdotal evidence. This was confirmed when I watched a Frontline presentation on the subject, and listened to Eisman. Is there a diamond in the rough or baby with the bath water? Of course? Am I enterprising enough to search for it, research it, and then hope Congress treats it fairly?

 

Hell no.

 

 

Good luck guys.

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  • 1 month later...

COCO is up over 50% from its low. Many for profit edus have reported earnings that have beaten consensus estimates (APOL, DV). Strayer's disappointed. COCO reports earnings next week and its stock continues to rally in advance of the release.

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  • 2 months later...

The gainful employment rule passed yesterday. I'm kicking myself for not having sold when I was up 40% with COCO. Instead, I sold out today at a 3% gain. The passing of GE eliminated the stock's upside and resulted in me merely owning a crummy company with decimated earnings and earnings growth potential.

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  • 1 month later...

Up 30% today...

 

http://www.reuters.com/article/2011/06/02/us-education-idUSTRE7513LR20110602

 

A watered down rule for the U.S. for-profit education industry ends more than a year of uncertainty that has weighed on the colleges and their stocks, and sets the stage for renewed earnings growth and potential industry consolidation.

 

 

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  • 2 months later...

OK, I hate the sector. I consider the whole "for-profit" (more like looting) education an experiment and it has not yet passed the test of time. I would not buy any of these stocks at fair value.

 

Having said that, was not the legislation uncertainty removed, at least ST, and were not the modifications not bad at all?

 

Then, what is going on with COCO?

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  • 1 year later...

Anyone else think COCO is a bargain here?

 

It is absolutely absurd how cheap this is. I am stepping in here.

 

I don't think the ED is going to pull the title IV funding over a write-down of goodwill. COCO is fully in compliance for 2012 and is even in compliance under the EDs (asinine) ruling with the restated results.

 

The rest of the lawsuits seem to be a joke.

 

The industry has taken an unbelievable beating and has been completely written off as a poor idea by many (even value investors) as people refuse to sit on MTM losses, and refuse to catch falling knives.... but this is blasphemy to me.  I personally think COCO is the one I want to hold.

 

The company has a great 2 step catalyst including ED reversal on Financial Responsibility compliance for title IV, and of course the inevitable buybacks. The company's trading price relative to normal earnings power is just too cheap to ignore. Barring a complete distaster in the appeal process forcing an LOC raise, this can easilly trade for many multiples of the current price.

 

Any thoughts?

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Harkin Report:

http://www.help.senate.gov/imo/media/for_profit_report/PartII/Corinthian.pdf

Conclusion

 

Corinthian charges some of the highest tuition prices of any of the companies the committee analyzed. Until new regulations requiring cost disclosures went into effect, it was very difficult to accurately determine the cost of Corinthian’s programs. The high cost of Corinthian’s programs is particularly troubling given that the bulk of the programs are non-degree Certificate and diploma programs and 2-year Associate degree programs that yield lower increases in earning power. The cost of attending Corinthian is so high that the company has created its own loan program to enable students to borrow money in excess of Federal lending limits.

 

The company has some of the highest student withdrawal rates of any company examined, with 67 percent of Associates students who enrolled in 2008-9 leaving the company by mid-2010. The company also has by far the highest rate of students defaulting on student loans of any publicly traded education company, with 36 percent of students who entered repayment in 2008 defaulting with 3 years of leaving the company’s schools. This likely reflects the high cost of attending and the inability of some students to find jobs that allow then to repay the debt they incur. Corinthian has engaged in a transparent effort to lower its rate of student defaults by aggressively working to contact students and have them enter forbearance and deferment but it is unclear whether those policies lead to more students repaying loans or lead to future defaults. It is unclear whether taxpayers or students are obtaining value

from the $1.7 billion investment that taxpayers made in Corinthian in 2010.

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When analysing an education company versus the education system, you have to look at comparable population. What are the risk factors for the considered student population (minority, family status, employment, etc.). It is like insurance: you can't compare a company which insures safe drivers and another which insures potentialy risky drivers. But which business model is the best ?

 

Another point: the 1.7 $ billion investment that taxpayers made in Corinthian in 2010 is repayable (it consists of loans where the ultimate charge offs are very low). It is not a subvention unlike in the public universities or not profit private colleges. Which ones receive more aid: private for profit or the other universities ?

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My 2 cents:

 

After reading the Harkin report and some financials of the big providers, frankly it looks like the subprime crisis all over again.

 

The whole sector is heavily funded by the government and produces very poor outcomes by almost any standard. Sure, some companies like ITT look cheap on a purely quantitative basis but it could very easily be a huge value trap. Removing some of the federal funding or just stiffening the hurdles to get it would have a very big effect on margins.

 

There is no investing in this sector, only speculating.

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Corinthian Colleges is on the radar below $2.  In the meantime, Lincoln Educational Services (LINC) appears to be the better organization.  Reason behind the statement is that I like the vocational space where a graduate can actually get a job fairly quick.  Anyway, do your own DD.

 

Cheers

JEast

Disclosure: Small position in LINC.

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Yes, for Value hounds JEast is looking at one dollar and $.75 as a good buying point for this possible $.50 dollar.  Also for you super value hounds I've been looking at a $.30 dollar in Brazil along with the Southeastern Memphis house. May go to $.10 on the dollar, but with potential for 5X at current entry point. Not A speculation given the price paid.

 

Cheers

JEast

Disclosure: Nearly a full position in Brazil.

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http://newyorkfed.org/newsevents/mediaadvisory/2013/Lee022813.pdf

 

 Higher education is an important investment among young

workers for better jobs and higher income, but it is

accompanied with a growing student debt burden.

 Total student loan balances almost tripled between 2004 and

2012 due to increasing numbers of borrowers and higher

balances per person.

 Nearly one third of the borrowers in repayment are delinquent

on student debt.

 The higher burden of student loans and higher delinquencies

may affect borrowers’ access to other types of credit and the

performance of other debt.

 

What happens to APOL, COCO, etc when the student debt bubble bursts?

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