Professional Documents
Culture Documents
172.28
A Bubble?
Over-reach:
Many for-profits began spending more on marketing than on educational services Crafted programs and prices to maximize federal tax dollars Very high default rates on federally subsidized student loans
Costs as a % of Revenue (2010) Revenue Sources (2010)
Marketing
23%
Profit
12.8%
58%
19.7%
Other (SG&A, Education Expenses)
86%
Regulators, especially Sen. Tom Harkin, have viciously attacked the industry for these practices
It Burst!
PPS of Selected Education Stocks
80 70 60 50 40 30 20 10 0 COCO DV BPI APOL
Eisman short thesis unveiled at conference: Subprime goes to College Gainful Employment regulations finalized
Ashford University (BPI) loses accreditation, highlighting a significant new risk for the industry
The leadership of DeVry has demonstrated a commitment to investing in students and student services, and in engaging in a dialogue to improve, steps which distinguish the company from others in the sector." - Harkin Report
19.10%
11.30% 3.40%
3.40%
77.50%
81.90%
85.10%
85.30%
DeVry
Corinthian Colleges
Bridgepoint
Apollo Group
50.00x
40.00x
30.00x
20.00x
10.00x
0.00x 2000
2002
2004
2006
2008
2010
2012
2014
Market Expectations
Recent industry regulation and uncertainty make precise long-term estimates difficult For this reason, we first decided to gauge the markets implied expectations for DV given current price (Mauboussin technique) Very important that the model include the inherent operating leverage in the business and account for history of large acquisition We amortized acquisitions over a ten year period and deducted from cash flow each year to reach FCF/student- acquisition adjusted We modeled the operating leverage using a logarithmic function
DCF Valuation
Market Expectations Student Growth years: (1-5) Student Growth years: (6-10) Discount Rate TV Growth Rate Value/Share Premium -5% 0% 10.16% 0% $23.02 0% Base Case 0% 0% 10.16% 3% $31.18 35.26%
Business Tech & Management Healthcare International and K-12 Net Cash
Total:
$29.7 (+28.8%)
*This grossly undervalues the BT&M segment, which includes the valuable Keller School of Business and Management, and includes major drags on EBIT in the Healthcare and K-12 Businesses.
Risks
Federal Regulation Danger of failing to comply with requirements for Federal Funds Accreditation BPI recently lost accreditation at Ashford University, putting into doubt whether they will receive Title IV funds (85.1% of revenue) Industry Stigma Negative public perceptions might continue to weaken enrollment
Questions?