UPDATE: Goldman Sachs Downgrades Education Management Corp. To Sell

In conjunction with its launch on the education sector, Goldman Sachs downgrades Education Management Corp. (NASDAQ: EDMC) to a relative Sell from Neutral with an $18 PT. Goldman believes EDMC will be most exposed to gainful employment regulations, due to its end-market exposure coupled with low repayment rates. It could be more constructive if the final rules are more favorable and result in a stronger outlook for revenue and profitability, EDMC is able to restructure its programs to minimize those that may be restricted, and near-term enrollment remains robust at The Art Institutes, offsetting expected weakness at EDMC's other schools.

Goldman's Sell rating and below-consensus estimates are centered on the scenario for the outcome of the gainful employment regulations. Goldman expects the final gainful employment rules, which would serve as a catalyst for the stock, to be released by the Department of Education in the coming months. It expects the new rules to have a more pronounced impact on EDMC given its exposure to programs with high tuition levels relative to salaries, and relatively low repayment rates based on preliminary data provided by the Department.

EDMC closed Friday at $21.96

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