UPDATE 1-Education company shares fall on Apollo SEC probe

(Recasts, adds details, updates share movement)

BANGALORE, Oct 28 (Reuters) - Shares of several U.S. adult education companies tumbled a day after Apollo Group Inc (APOL.O) said federal regulators had launched an informal inquiry into its revenue recognition practices.

Apollo's shares were down 15 percent at $61.92 in pre-market trade on Wednesday, while Corinthian Colleges Inc (COCO.O) was down 6 percent.

Shares of rival DeVry Inc (DV.N), however, rose 2 percent to $56.00.

Apollo, the parent of University of Phoenix, said it became aware of the inquiry by the U.S. Securities and Exchange Commission last week but could not determine its scope, duration or outcome. [ID:nN27264498]

At least three brokerages downgraded the company, saying the lack of information about the inquiry could hurt the stock.

The inquiry could be something specifically related to Apollo or could be industry-wide, Signal Hill analyst Trace Urdan said, as the company has no "material differences in the way it recognizes revenue versus the other players in the group."

Apollo said there had been no significant changes to the way it recognized revenue, other than shifting from a weekly to a daily recognition process in its fourth quarter ended Aug. 31.

Shares of education companies have been rattled by regulatory concerns over the past several months as investors fear more scrutiny into the sector under the administration of U.S. President Barack Obama.

"What is very disconcerting is that the SEC targeted Apollo, which is a large, publicly traded, for-profit institution," Wedbush Morgan Securities analyst Ariel Sokol said.

DeVry, which also reported results late Tuesday, said it had no issues with its revenue recognition.

The inquiry overshadowed strong results from Apollo and DeVry that topped market expectations.

BofA-Merrill Lynch downgraded Apollo to "neutral", saying the company would be affected until more information about the inquiry became available.

RBC Capital markets also downgraded Apollo to "underperform" from "sector perform". Morgan Stanley cut its rating to "equal weight" from "overweight".

OTHER CONCERNS

Apollo said it is exploring the possibility of selling its online high school unit, Insight Schools, which the company acquired in 2006.