I am retired and take educated guesses on all things financial.

February 24, 2008

February 25, 2008: Capella Education Company, An Intelligent Choice

I rarely bother to follow education service stocks. Being a long time High School Principal, I may be just fatigued regarding the sector. However, I do know that education service stocks are somewhat counter cyclical. When the economy falters, more students choose to attend speciality schools that are generally "for profit" enterprises. Public school simply cannot match up with niche players and the growing internet education programs - their Stalinist unions will not have any of it. I have screened this sector and found one of several educational service stocks that appears to be an excellent value at this time, trading a full ten dollars below it's fifty day moving average amongst other criteria.

The company that looks like a very good buy now is Capella Education Company (CPLA).
CPLA is an online post-secondary education provider that, through its wholly owned subsidiary, Capella University, offers a variety of doctoral, masters and bachelor degree programs in the markets of health, human services, business management and technology, and education. As of December, Capella Education Company offered over 760online courses and 13 academic programs with 75 specializations to approximately 20,000 students. The company also offers certificate programs which consist of a series of courses focused on a particular area of study (this is the high margin profit center as I see it, for now and the future), Capella Education Company also offers learner support services, such as academic services, administrative services, library services and career counseling services.CPLA is a pure play for investor's interested in online education providers.

Capella Education Company's specialized accreditation and state licensures significantly differentiate this company from the competition. CPLA has a reputation for delivering quality educational experiences, and this matters in the online educational field.The working adult students (generally averaging about 40 years of age) come with appealing attributes, such as long length of stay, better credit profiles, more Title VI funding and an attitude that drives them to complete the educational program they have selected. Less than 1% of CPLA's revenues come from private educational loans, which appears to be amongst the lowest of all education service providers. Students are online from all fifty states and 56 countries worldwide.

Founded in 1991 and going public in November of 2006 at $20.00 per share, CPLA is trading at $52.31 per share, down from its $75.38 high in November, 2007. Average share volume is 292,000 shares. Market cap is $901m. The company has met its earnings consensus, and the growth of the company is conservatively estimated at 13.9%(CAGR) with an operating margin expected to come in at 18%.The management of this company is first rate, with both extensive educational and business experience. Institutional shareholders are gold standard and appear to be well satisfied with the direction of the company based upon their investment holding time and accumulation of shares.

There are downside risks. A more hostile operating environment for profit center schools that education union love to hate. Some grants may be found to be fraudulent if students dropped out of the school without notification and thus carried on the books illegally. And, with more schools entering the online education field, CPLA will have to keep on top of its game providing value for time and money spent by students to learn their selected endeavor.

On balance, I view CLPA as being spot on in the education service sector. Capella Education Company is an intelligent choice to consider for your speculative portfolio, especially if a recession is in progress.


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