DeVry Shares Downgraded To Underperform At BofA

For Fall 2015, US educational institutes recorded a 1.7 percent y/y decline in enrolment across all higher education courses. BofA Merrill Lynch’s Sara Gubins attributed the decline to weak demand across higher education, a mature online market and increased competition.

Analyst Sara Gubins downgraded the rating for DeVry Education Group Inc DV from Neutral to Underperform, with a price objective of $18.

FTC Suit And Its Impact

DeVry’s current valuation is low. Gubins added, however, that the FTC lawsuit against the company regarding misrepresentation of facts and its potential monetary impact could exert pressure on the shares. Increased regulatory concerns and the pending borrower defense regulation could create additional overhangs, the analyst said.

“The FTC suit could result in fines if the court finds that DV falsified job placement rates/bachelors grad earnings,” Gubins wrote. He added that, based on the result of the FTC suit, the Department of Education could require DeVry to post a sizeable letter of credit under the new draft borrower defense regulation.

DV University’s fundamentals remain weak and are unlikely to improve in the near term. Start trends at the university’s undergraduate courses are likely to remain sluggish for the next several terms, as DeVry is in the process of closing 14 campuses and consolidating another 6 markets, shifting towards local versus national marketing efforts and lowering overall marketing spend, the analyst added.