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WIKI ANALYSIS
DeVry (NYSE: DV) is the third-largest for-profit university by revenue. The company offers undergraduate and graduate degrees in technology, business and healthcare technology, management, medicine, veterinary medicine, and nursing. In early 2008, more than 108,800 students were enrolled in DeVry's various programs and tuition accounted for more than 92% the company's total revenues.
One of DeVry's fastest growing divisions is its Medical and Healthcare segment. Through Ross University Schools of Medicine and Veterinary Medicine and Chamberlain College of Nursing, the company offers nursing, M.D., and veterinary degrees. The US Department of Labor predicts that 587,00 new jobs will be created for registered nurses through 2016 and the Association of American Medical Colleges expects the demand for physician education to grow by 30% over the next decade. In response to this overwhelming demand DeVry plans to open new Chamberlain College campuses every year, and Ross University has seen increased enrollment every term since May 2005.[1] In FY 2007, revenue from DeVry's Medical and Healthcare segment increased by 24.2% from 2006, and in FY 2006, this segment's revenues increased 21.3% from 2005.
Historically, enrollment at for-profit educational institutions has increased during economic downturns as poorer job prospects cause prospective students to view continuing education more favorably. During the 2001 recession, enrollment growth at four-year for-profit education institutions doubled, and during the first years of recessions over the last four decades, enrollment growth in two-year education programs has increased by an average of 12%.[2] However, the 2007/2008 downturn in the U.S. differs from other downturns in the recent past. The ongoing subprime lending crisis has forced many banks to reexamine and restrict their lending practices; and in January 2008, Sallie Mae, the largest provider of private student loans, decided to terminate its lending programs with for-profit educational institutions. Private banks are exiting the for profit university student loan business as well. These conditions make it more difficult for students to acquire funding for their education. DeVry has less exposure to either of these markets than its competitors. Sallie Mae loans and Private loans account for only 1% and 5%, respectively, of DeVry's revenues. This compares favorably to some of its competitors who have private student loan exposure of over 20%. .[3]
Business Financials
The company is the holding company for DeVry University (including the Keller Graduate School of Management), Ross University, Chamberlain College of Nursing, Becker Professional Review, and Advanced Academics. DeVry University offers associate, bachelor's and master's degree programs in technology, healthcare technology, business, and management. Ross University offers doctoral degree programs through its schools of Medicine and Veterinary Medicine while Chamberlain College of Nursing offers associate and bachelor's degree programs in nursing. The Professional and Training segment includes Becker Professional CPA Review and Stalla Review for the CFA Exams, provides professional education and test preparation services to candidates of the Certified Public Accountant (CPA) and Chartered Financial Analyst (CFA) professional certification examinations.
In FY 2007, revenues were $933.5 million, up 11.2% from the previous year.[4] The overall increase was due to increased revenues for all three segments: DeVry University revenues grew 7.8%, Professional and Training revenues increased 26.8%, and Medical and Healthcare revenues were up 24.2%.[5]
- DeVry University (78% of revenue) - DeVry University offers undergraduate and graduate degree programs in technology, business and healthcare technology, and graduate degrees through the Keller Graduate School of Management. At the start of the summer 2008 term, total student enrollment was 40,774, 9.8% higher than summer 2007. Revenues from this segment, which accounted for 78% of the company's total revenue, increased 7.8% from the previous year. Approximately 80% of its students receive some government-sponsored financial aid.
- Professional and Training (7% of revenue) - In 2007, more than 47,000 students enrolled in review classes, with CD-ROM and online review courses accounting for nearly 55% of all enrollments.[7] Advanced Academics provides online secondary education to school districts throughout the U.S. Students attending the CPA/CFA review courses are not eligible for federal financial aid but many employers pay tuition for their employees in the these programs.
- Medical and Healthcare (15% of revenue) - The Medical and Healthcare segment consists of the Ross University School of Medicine in Dominica, Ross University School of Veterinary Medicine in St. Kitts/Nevis, and Chamberlain College of Nursing in Missouri and Ohio. These institutions served nearly 4,800 students in 2007,[8] and present one of DeVry's greatest opportunities for growth with demand for medical education expected to increase by 30% in the next decade.[9] Nearly 85% of Ross University students receive federal financial aid loans and 70% of nursing students at Chamberlain College of Nursing receive government financial aid.[10]
In August 2002, DeVry University was re-accredited by the North Central Association of Colleges and Schools (NCA) for 10 years. Title IV funds (government financial aid) are only available to accredited schools and 70% of DeVry's undergraduate revenue is generated by this federal financial assistance; approximately 60% of revenues generated by its graduate programs comes from Title IV funds. [11]
Trends and Forces
Job Trends and DeVry’s Medical and Professional Training Segments
According to the US Department of Labor, the employment of registered nurses through 2016 is expected to create 587,000 new jobs representing growth of 23%. Some employers in certain parts of the country are having difficulty attracting registered nurses, while enrollments in registered nursing programs are increasing rapidly over the past few years. Applicants are reported to be turned away due to the shortage of nursing faculty. DeVry’s is opening another Chamberlain college of nursing facility in Ohio, and the company also filed applications to open up Chamberlain facilities in Illinois and Arizona to add to their existing location in Missouri and Ohio. The company stated during the 2nd quarter earnings call that their goal was to open up one new Chamberlain facility per year.
Within the accounting and financial industries, the US Department of Labor reports 226,000 new jobs in accounting, and 147,000 new jobs for financial analyst/advisers through 2016. This represents job growth rates of approximately 18% and 37% respectively. Demand for CPA and CFA designations will likely increase as these specializations help respective accountants and financial adviser advance their careers and compensation. DeVry’s Becker CPA and Stalla CFA review programs have benefited from these trends showing over 20% top line revenue growth rates for the professional/training segments. The company has made efforts to align these programs with specific accounting firms and societies inside the US and internationally, in the hopes to increase the channel/demand for these review programs.
Limited exposure to Sallie Mae and Private Loans
The subprime lending crisis has made banks more risk adverse and in some cases, less willing to make loans to students. Student lending comes in various forms, with students seeking financing from generally 2 main sources:
- FFEL (Federal Family Education Program) / Title IV loans. These loans are backed by the government, but issued through financial institutions.
- Direct private lending from the financial institutions.
The main areas of concern for many for-profit schools surround the FFEL program and direct private lending. Many financial institutions have exited the FFEL program due to the sudden freeze in bids for student debt in the auction rate securities market. This in essence reduces the supply of financial aid at some schools. Some banks such as Bank of America have stopped private lending all together.
For DeVry, only 5% of their tuition revenue comes from private lending,[12] so exposure to this channel of financing is small.
In January 2008, Sallie Mae declared that it will be terminating its loan program within the entire postsecondary education market; these loans accounted for only 1% of DeVry's revenue in FY 2007, a much smaller percentage than most of the company's competitors.[13]
EDUCARD
As of 2007, DeVry reported more than 80% of their students use government sponsored financial aid. The company will be able to mitigate some of this risk with their own financing program, EDUCARD. EDUCARD only steps in after all other financing options have been exhausted, requiring students to pay within 12 to 24 months. Accounts Receivables totaled $52.9 million from EDUCARD, up from $51.7 million last year. DeVry attributes the increase to fewer federal aid options, more part-time students who have fewer financial aid options, and longer repayment plans that better serve military and adult students.[14]
Investigation by the Department of Education
In May 2008, DeVry was investigated by the Department of Justice for possible "recruiter compensation" violations. By participating in Title IV loan programs, recruiters are prevented from being directly compensated by private lenders. No specific violations have been mentioned yet but it is possible DeVry submitted false claims about recruiter compensation to the Department of Education.[15] During the 2004-2005 school year, DeVry University received $88,122 from Citibank, one of its preferred lenders at the time, but this money was later returned.[16]
Competition
The post-secondary education market is highly competitive and not dominated by any single player. The United States has approximately 6,440 post-secondary education institutions[17]:
- 2,570 private, for-profit schools
- 2,010 public, non-profit schools
- 1,860 private, non-profit schools
In addition to this extreme market fragmentation, the extensive accreditation process acts as a significant barrier to entry for new companies. Of the other private, for-profit schools that target non-traditional students, ITT Educational Services (ESI), Career Education (CECO), and Apollo Group (APOL) pose the greatest competition to DeVry.
ITT Educational Services (ESI) operates 93 institutes in 34 states serving approximately 49,000 students. In FY 2007, ITT's total revenue was $869.5 million.
Career Education Corporation (CECO) operates 80 campuses in the United States, Canada, France, and the United Kingdom, and two online academic programs. Approximately 90,000 students[18] are enrolled in their programs and their FY 2007 total revenue was $1,675 million.[19]
Apollo Group (APOL) operates the University of Phoenix, the largest private, for-profit postsecondary education institute. They serve more than 313,700 enrolled students, at 102 campuses and 157 learning centers in forty states. Apollo's total revenue for FY 2007 was $2.72.8 billion.
| DeVry (DV) [20] | ITT Educational Services (ESI) [21] | Career Education (CECO) [22] | Apollo Group (APOL) [23] | |
| Enrolled Students | 108,800 | 53,000 | 90,000 | 313,700 |
| Sites | 63 | 106 | 80 | 259 |
| Total Revenue - FY 2007 ($ mil) | 933.5 | 869.5 | 1,675 | 2,723.8 |
Market Share
The National Center for Education Statistics predicted that there would be approximately 2.1 million students enrolled in private, for-profit postsecondary education institutions in the 2006-2007 school year.[24] Using this predicted number of students and enrollment information for DeVry and its competitors, each institution's market share is listed below.
| DeVry (DV) [25] | ITT Educational Services (ESI) [26] | Career Education (CECO) [27] | Apollo Group (APOL) [28] | Other Private, For-Profit Institutions | |
| Enrolled Students | 108,800 | 53,000 | 90,000 | 313,700 | ~1,534,500 |
| % Market Share | 5.2 | 2.5 | 4.3 | 14.9 | 73.1 |
Notes
- ↑ DV 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, pages 14, 43, 48
- ↑ School Stocks That Win When Jobs Go Bad, MSN Money, 1/16/08
- ↑ "A Second Look at Educational Services and Student Lending Problems," Seeking Alpha - 3/31/2008
- ↑ DV 2007 10-K, Item 6: Selected Financial Data, page 42
- ↑ DV 2007 10-K, Item 6: Selected Financial Data, page 43
- ↑ DV 2007 10-K, Item 6: Selected Financial Data, page 42
- ↑ DV 2007 10-K, Item 1: Description of Business, page 11
- ↑ DV 2007 10-K, Item 1: Description of Business, page 10
- ↑ DV 2007 10-K, Item 1: Description of Business, page 14
- ↑ DV 2007 10-K, Item 1: Description of Business, page 23-26
- ↑ DV 2007 10-K, Item 1: Description of Business, page 24
- ↑ DeVry's Long Term Prospects, What Can I Do With Ten Grand? 4/24/08
- ↑ A Second Look at Educational Services and Student Lending Problems, Seeking Alpha, 3/31/08
- ↑ DV 2007 10-K, Item 1: Description of Business, page 25
- ↑ DeVry: DoJ Investigation May Complicate Matters, Seeking Alpha, 5/20/08
- ↑ DV 2007 10-K, Item 1: Description of Business, page 24
- ↑ DV 2007 10-K, Item 1: Description of Business, page 12
- ↑ Career Education Corporation - Main Page
- ↑ CECO 2007 10-K, Item 6: Selected Financial Data, page 41
- ↑ DV 2007 10-K, Item 1: Description of Business, pages 7-11
- ↑ ESI 2007 10-K, Item 6: Selected Financial Data, page 34
- ↑ Career Education Corporation - Main Page
- ↑ APOL 2007 10-K, Item 1: Business, page 4
- ↑ CECO 2007 10-K, Item 1: Business, page 2
- ↑ DV 2007 10-K, Item 1: Description of Business, pages 7-11
- ↑ ESI 2007 10-K, Item 6: Selected Financial Data, page 34
- ↑ Career Education Corporation - Main Page
- ↑ APOL 2007 10-K, Item 1: Business, page 4
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