Ms. Junker: We cover the postsecondary education companies, and that's going to include names like Apollo (APOL), Capella (CPLA), DeVry (DV), Career Education (CECO), Strayer (STRA) among others. We also cover a couple of K-12 education companies, specifically the company K12 (LRN), which offers proprietary curriculum, software and management services for virtual K-12 public schools, and then School Specialty (SCHS), which supplies supplemental education products into K-12 schools. And then the other two names that we cover, which we classify as eLearning, are Blackboard (BBBB) a provider of enterprise software to schools, and Rosetta Stone (RST), the language learning company. And then one other I should mention is New Oriental (EDU), the largest provider of private education services in China.
TWST: In the for-profit, postsecondary arena, companies received a big boost
from the recession. How much longer will that growth last? How has the recession
impacted other sectors that you follow?
Ms. Junker: Yes, postsecondary has had an absolutely great run. The stocks
picked up beginning in 2007 and ran all through 2008. There was a bit of a
correction early in 2008, when there were concerns over lending. But other than
that, they did quite well for most of the year. And the fundamentals, I would
say, have really been doing very well through 2008 and continue to do well. Now
the stocks have underperformed year-to-date as investors have rotated out of the
names, and concerns about the regulatory environment and the potential for
slowing growth have weighed on the stocks. I would expect that the growth is
probably going to continue through the remainder of this year. After this year,
I think the trends will stay solid. But we expect a deceleration to occur in the
growth because comps get tougher. The companies are putting up better growth
than they have ever seen historically in a lot of cases. So certainly the weak
economy is driving more and more students to go back to school either to get
trained in a new area of study or to beef up their resume in the event that they
do lose their job. So I guess we are thinking another couple of quarters
probably of good fundamental results and then after that it's going to get a bit
more challenging. And to be clear, I should probably say we don't expect
negative trends, just deceleration. And that's under the assumption that the
economy stays somewhat weak. If the economy starts to get better faster, then
you will see that deceleration happen much faster and, in some cases, you could
actually see negative trends.
With the other industries, with K-12 it's a challenging environment because both
the companies that I cover and most companies in the K-12 are dependent on state
budgets, which are obviously challenged right now. And so that's certainly being
reflected in School Specialty's results, less so in a company like K12, whose
growth is so great, it has been able to offset the weak state budgets because
the company is growing and moving into new states, and growing within existing
states. That's more because it is an emerging growth story, I think, virtual
charter schools. And then names like Blackboard and Rosetta Stone - I would say
you feel a little bit of the impact of the economy, but they are pretty
resilient companies, and they are not really countercyclical per se. But they
are a bit more defensive and have held up relatively well given how the economy
has been.
Tickers included in this excerpt: APOL, CECO, COCO, CPLA, DV, EDU, ESI, LINC, LRN, RST, SCHS, STRA
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