ITT Technical Institute and Education & Workforce Development

Education stocks rise as reports hint at looser rules

April 13, 2010

Shares of ITT Educational Services Inc., DeVry Inc., and Grand Canyon Education Inc. rose Tuesday after analysts said the U.S. government may loosen proposed rules that would restrict companies’ eligibility for federal student aid.

ITT Educational, based in Carmel, gained $10.42, or 9.6 percent, to $119.20 per share, their biggest gain in seven months.

DeVry, based in Oakbrook Terrace, Ill., rose $6.67, or 10 percent, to close at $71.73, its biggest one-day gain since Jan. 27. Grand Canyon, based in Phoenix, rose $1.07, or 4.1 percent, to $27.35.

Proposed Department of Education rules would require education companies to show that graduates earn enough to afford repayment of their student loans. The government may exempt educators from the regulations when more than half of students complete their degree programs and 70 percent of graduates get jobs in fields relevant to their studies, said Kelly Flynn, a Credit Suisse analyst in New York, in a report to clients Tuesday.

“The new measure effectively removes the significant threat the rules had created for nationally accredited degree programs with typically high default rates,” Trace Urdan, an analyst at Signal Hill Capital Group in San Francisco, said in a note to clients.

The proposed exemption might “fuel investor optimism” that the Department of Education could further ease its proposed regulations in the coming months, Flynn said. She raised her rating on DeVry and ITT Educational to “outperform” from “neutral.”

Bridgepoint Education Inc., based in San Diego, rose $2.26, or 9.4 percent, to $26.34, its biggest increase in almost a year. Corinthian Colleges Inc., based in Santa Ana, Calif., gained $1.19, or 6.8 percent, to $18.62. Education Management Corp., based in Pittsburgh, gained $3.02, or 13 percent, to $25.56, for the company’s biggest rise in six months.

The concession suggests that Education Secretary Arne Duncan wants to avoid a fight with Republicans in the House of Representatives over the proposed regulations, Urdan said. While the exemption doesn’t require congressional approval, it may help Duncan pass his version of the Elementary and Secondary Education Act, which aims to overhaul standards in U.S. schools, Urdan said.

“We believe investors need no longer fear that significant revenues could be at risk in the event that the rules are passed,” he said in the note.

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