A cloud of uncertainty may finally be lifting from the
for-profit education industry, drawing bulls back to one of the
most beaten-down areas in the market.
Reuters and Citigroup said Education Department officials briefed
Congress on rules governing access to federal loans and would
formally release the regulations today. Companies such as Apollo
Group, Corinthian Colleges, and Career Education rallied on the
news, and option activity turned increasingly bullish as the
APOL accounted for about half the volume in the group and was the
first to appear on our Heat Seeker program as investors snapped up
about 15,000 June 44 calls, most of which priced for $0.95.
The COCO June 4 calls were the second-busiest contract, trading
more than 5,000 times for $0.15 to $0.30. CECO's June 23s and June
24s followed with volume of 4,301 and 3,640, respectively.
Including ITT Educational Services, overall option volume in the
group was 8 times greater than average. Calls accounted for a
bullish 78 percent of the activity in the four names, with
purchases dominating the order flow.
The stocks have been getting killed since April 2010 after
government officials expressed an intention to tighten student-loan
standards. The 12-month declines range from 17 percent by CECO and
69 percent by COCO, but the stocks have shown signs of stabilizing
in about the last month.
Although the rules may seem draconian, the market has already
priced in considerable negative news. Given that these companies
have considerable short interest, little debt, and trade at deeply
discounted multiples, clarity on the regulatory backdrop could draw
more investors back to the sector.
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