Education stocks fall on buzz ahead of GAO report

Tue, Aug 3 2010

By Fareha Khan

BANGALORE (Reuters) - Shares of U.S. education companies fell Tuesday on reports that the United States Government Accountability Office said some for-profit colleges encouraged fraudulent practices with regard to student recruitment.

BMO Capital Markets analyst Jeffrey Silber, who has seen the not-yet-public report, wrote in a note to clients that the GAO investigation found 15 for-profit schools making deceptive statements, like providing misleading information about program duration, costs and potential salaries.

The GAO report is expected to be publicly available later Tuesday.

Sterne, Agee & Leach analyst Arvind Bhatia said the report will have an impact on these companies' bottom-line, at least in the next 6 months to 12 months.

"This puts pressure on Congress to actually do something, and also increases the risk of litigation for the for-profit companies," Bhatia said.

The S&P 1500 education services sub industry index was down 3 percent in afternoon trade, with bellwether Apollo Group (APOL.O: Quote, Profile, Research, Stock Buzz), down 4 percent at $45.30 on Nasdaq.

Shares of Corinthian Colleges Inc (COCO.O: Quote, Profile, Research, Stock Buzz) were trading down 4 percent at $8.89, Career Education Corp (CECO.O: Quote, Profile, Research, Stock Buzz) down 4 percent at $23.88, both on Nasdaq, and DeVry Inc's (DV.N: Quote, Profile, Research, Stock Buzz) shares were trading down 3 percent at $52.96 on the New York Stock Exchange.

(Reporting by Fareha Khan and Bijoy Koyitty in Bangalore; Editing by Anthony Kurian)

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