Grand Canyon University Might Get A New Campus

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Students at for-profit schools take out 26% of student loans, but represent 43% of loan defaulters, the Department of Education has found.

This has raised the question: Do for-profits adequately prepare their graduates for jobs that will allow them to repay loans?

As regulators mulled ways to ensure higher levels of loan repayment, many for-profit stocks were hammered.

But notGrand Canyon Education ( LOPE ), whose unique business model and strong academic performance have weathered tighter new regulations. Enrollments and earnings, not to mention share price, have continued to move north over the last year.

The for-profit industry lobbied heavily against strict new standards. The blitz worked, and the new rules proved to be far less stringent than feared. For Grand Canyon, it has been no sweat at all.

With an emphasis on programs in practical fields like nursing and business, Grand Canyon aced the new exams.

"Grand Canyon did fare quite well. None of their programs failed the new metrics," said Jeffrey Meuler, analyst with Robert W. Baird.

"Grand Canyon is well above the compliance thresholds," said Jerry Herman, analyst with Stifel Nicolaus.

Student Life

That performance only added to the momentum Grand Canyon was building on other fronts. Its unique model, which offers the option of student life on a Phoenix campus as well as online programs, kept attracting students.

In the first quarter of this year, enrolment grew 8.9%. That helped produce revenue growth of 15%. CEO Brian Mueller expects Grand Canyon to grow enrolment by 8% to 10% over the next few years. Revenue should expand by 15% annually, Mueller told IBD.

And that doesn't even include the windfall gift of a new campus that may be about to fall into Mueller's lap.

Grand Canyon is one of two finalists to receive the donation of a 217-acre former prep-school property in Massachusetts. The property currently belongs to the Green family, owners of the Hobby Lobby chain of craft stores. The donors are looking for a recipient with a Christian orientation. A decision could come this month.

Massachusetts real estate is not cheap. How much are the land and buildings on the Northfield Mount Hermon campus in Northfield, Mass., worth?

"You're probably talking nine digits," guesstimated Herman. If that's the case, Grand Canyon would be able to enter the pricey northeast educational market with an enormous cost advantage. A gift worth $100 million for a property that is nearly twice the size of Grand Canyon's Arizona campus would jolt the Massachusetts academic market. Grand Canyon would have an enormous cost advantage.

Herman says award of the campus to Grand Canyon is "not a lay-up," but that he would deem it the favorite.

It would certainly be a plus for Grand Canyon. "It would serve as another tranche of growth opportunity," said Herman.

Of course, a new campus would require major investment. And some observers have questioned whether Grand Canyon could transplant its Arizona success into the very different cultural soil of Massachusetts.

Grand Canyon prides itself on its for-profit status and nondenominational Christian orientation. But Massachusetts already has numerous high-quality, nonprofit academic institutions. And it is not clear whether the religious appeal would work quite as well in the Northeast.

Mueller indicates he would accept the gift. But he says Grand Canyon must still do some "due diligence." He wants to be sure the small town of Northfield has the infrastructure to support a new campus. "It's a small town," he noted, wondering if the water, sewer and electric utilities are robust enough.

But how do you turn down a free 217-acre campus? Mueller, moreover, seems optimistic about the overall proposition of Northeast expansion. Grand Canyon, he reasons, can extend its proven model, which combines a traditional campus with a far larger online student base. Currently, for example, only 10% of Grand Canyon's total student population of more than 46,000 is campus-based.

Mueller points out that there is proven interest in Grand Canyon's online programs in the Northeast. "We already have 5,000 online students in the Northeastern states," he said. And, the proximity to Boston, New York and Philadelphia offers a large population base for recruitment.

One major advantage for Grand Canyon, if it moves east, is its proven ability to hold down tuition. Though published tuition is around $16,500, scholarships drive down the average student cost to roughly $8,000. Grand Canyon has learned to price itself competitively against state institutions.

Sharing Infrastructure

"We've come up with a financial model that keeps tuition very low. The online drives the pricing advantage. Sharing the infrastructure with online is far more efficient than we thought," he said.

The online student base makes Grand Canyon efficient. The campus, with its sports teams, dorms and pop concerts, creates a "brand" that helps to lure those students. "It has helped online enrolment. It enhances the brand in Arizona and the broader Southwest," noted Baird analyst Meuler.

Unlike younger campus students, online students are often working professionals in their 30s. Many are pursuing advanced degrees in health care and education. Late night sessions glued to a computer screen can be lonely and tiresome, and the online students like the idea of being able to actually go to a campus where they belong.

"They absolutely love to come," said CEO Mueller. "The 34-year-olds come from all over the country. It means a lot to be on our campus, to be tied to a place that has permanence."

Grand Canyon may soon be lucky enough to offer two such places.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

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