The kind way to describe for-profit college DeVry's (
DV
) recent earnings report is: "less bad than expected." A more
exact description includes a 41% profit slide and a 7% revenue
fall due to declining enrollment. But that sort of focus
disguises the fact that a whole lot of investors - including some
very wealthy stock pickers - are quite bullish on DeVry these
days.
DeVry shares actually jumped 25% on the Oct. 25 earnings
report, pushing the company onto the most actively traded and
biggest gainer lists for awhile. It was a particularly impressive
feat considering the fate of its competitors following their own
announcements.
DV
data by
YCharts
The hedge fund world must have seen this coming. DeVry was the
most popular buy in the third quarter among managers of the 50
largest hedge funds, according to datarama. Among them were John
Rogers of Ariel Appreciation and Charles Brobrinskoy of Ariel
Focus. Their investments followed a big second quarter DeVry
entry by FPA Capital's Robert Rodriguez, a deep value investor
who also added to his holdings in the last quarter.
The attraction? DeVry is looking like the best turnaround
candidate in an industry that just survived a life-threatening
attack. For-profit colleges offering largely two-year vocational
degrees (although some do graduate school, too) get some 90% of
revenues from federal student loans and grants, and loans to such
institutions have particularly high default rates. Legislation --
aimed largely at curbing $35,000 bills for training that leads,
for the lucky, to $15,000 a year jobs - sought to limit
aggressive recruiting and to tie funding to job-placement
rates.
DV
data by
YCharts
The year ended with Armageddon averted; a massive lobbying
campaign by the industry helped water down regulations. But the
bad publicity and the general frustration for job seekers, even
with degrees, these days has hurt resuts throughout the industry.
Apollo Group Inc. (
APOL
), the largest U.S. for-profit college and owner of University of
Phoenix, announced in mid-October plans to close half of its
locations. ITT Educational Services (
ESI
) reported a whopping 17% year-over-year enrollment decline.
It's this sort of environment that makes DeVry look good even
as its numbers remain bad. DeVry's enrollment loss wasn't as much
as analysts had expected and was less than competitors'. Although
overall enrollment was down, enrollment and profits were
significantly up at its smaller medical and healthcare campuses.
Investors see growth there. Perhaps more importantly for now,
though, they were impressed by bigger-than-expected cost cuts
that made DeVry's earnings per share figures better than
expected, and plans to significantly cut costs further.
Meanwhile, the bullishness on DeVry has caused its share
valuations, based on
PE ratio
, to more than double over competitors.
DV PE Ratio TTM
data by
YCharts
No one expects a great year for DeVry in 2013. In the analyst
world, DeVry shares carry a mixed lot of recommendations.
Considering 21% of its float is currently held short, someone
thinks this latest boon will be short-lived. But perhaps all
those hedge funds are onto something.
Dee Gill is a contributing editor at YCharts, which
includes the just-released
YCharts Pro Platinum
for professional investors.