PREVIEW-U.S. education cos to see another successful quarter
* Analysts see strong quarter for education cos
* Average total enrollment seen up 20 pct
* Concerns on govt regulations may linger longer By Amulya Nagaraj
BANGALORE, Oct 20 (Reuters) - U.S. education companies are expected to extend their winning streak into the third quarter, even as investors remain concerned about the impact of increased regulations on the sector and fear that an economic recovery could slow growth.
Analysts are expecting most of the companies in the sector to top market expectations, driven by average total student enrollment growth of above 20 percent.
"Much of this strong growth, in our view, is attributable to the economic environment, which continues to spur demand for career-oriented training," BMO Capital analyst Jeffrey Silber said in a note to clients.
Most education companies benefited from the weak economy last year, as people returned to school in the hope that a better degree might improve their job prospects.
ITT Educational Services Inc (ESI.N) will kick off the earnings season for the post-secondary education industry group when it reports results on Oct. 22.
Although there are some lingering concerns about ITT's bad-debt situation, which rose to 5.9 percent in the second quarter, analysts are expecting a strong third quarter.
"I would expect the surprise that ITT Education posts in the second half (of 2009) to be on the upside, not the downside," Barrington's Alexander Paris said.
The debt rate could go above 6 percent this quarter, close to a peak rate and would probably drop next year, he added.
Schools such as Lincoln Educational Services Corp (LINC.O) and Corinthian Colleges Inc (COCO.O), which provide short-term and less expensive courses, gained most from the recession.
In September, Lincoln Educational said it expects third-quarter results to exceed its previous guidance, citing strong student enrollment growth.
However, sequential growth in enrollments for most companies is expected to be flat or slightly down.
ONLINE CLICKS
Online schools like Capella Education Co (CPLA.O) and Grand Canyon Education Inc (LOPE.O) may post stronger growth than their peers with "on-ground" campuses, as the current strong momentum in enrollments will continue.
"Online growth will be stronger than on-ground growth and it will be consistent with the growth that we saw last quarter," Signal Hill's Trace Urdan said.
The online education sector grew 13 percent last year and had been growing at about 20 percent in previous years. [ID:nN17215947]
Enrollment in online education schools is expected to grow about 18 percent in 2010, according to Gerry DiGiusto, an analyst with higher education research firm Eduventures.
REGULATIONS LOOM?
Shares of education companies have been volatile over the past few months as investors were sceptical about more regulations from the Obama administration and feared that a possible economic recovery could end the boom.
The Standard & Poor's education services index .GSPEDUS has fallen 16 percent since touching its year-high of $124.69 on Jan. 22 this year.
The uncertainty regarding regulations could remain for some time due to the perception that the Obama administration is "less favorable" to this sector than the Bush administration, BMO's Silber said, adding that the result might not be as bad as some people fear.
Employment trends are also not very positive, with a recovery unlikely before mid-2010 at the least, analysts said.
"It seems for the next two years you are probably going to have double-digit unemployment, which means there will be a lot of people who will be quite insecure about their jobs... and I think they are going to gravitate towards these schools," Wedbush Securities Ariel Sokol said. (Reporting by Amulya Nagarag; Editing by Pradeep Kurup)
