MW Education stocks rally as Trump seen as a boon for private colleges

By Ciara Linnane

For-profit colleges are expected to enjoy less regulatory pressure under the new administration

Shares of private-education companies rallied Wednesday, on expectations that some of the regulatory pressure on the group will be eased once President-elect Donald Trump begins his term in January.

"Specifically, the for-profit college stocks could see the risk of revised gainful-employment rules removed," said BMO analyst Jeffrey Silber in a note to clients.

Those rules require that private for-profit institutions prove that their degrees confer adequate employment benefits to students once they graduate.

"This rule is actually more onerous under the Biden administration when compared to changes made under the Obama administration, as it now entails passing a two-part test based on debt/earnings ratios and median wages of high-school graduates by state," the analyst wrote.

The Trump administration effectively rescinded gainful-employment rules during Trump's first term and something similar could happen in his second term, Silber said. He noted a similar rally in the stocks in 2016 when Trump won his first presidential election.

Adtalem Global Education Inc.'s stock $(ATGE)$ soared 8.8% Wednesday, while Grand Canyon Education Inc. shares $(LOPE)$ were up 12.4% and Strategic Education Inc. shares $(STRA)$ were up 9.5%.

Silber has an outperform rating on all three stocks, the equivalent of buy.

Grand Canyon Education had come under special negative attention from the Education Department under President Biden, said Silber.

In December 2023, the Federal Trade Commission sued the company, which works with Phoenix-based Grand Canyon University, accusing the two entities of deceiving prospective students about program costs and "deceptively" marketing the school as a nonprofit.

Grand Canyon, which is the nation's largest Christian university, responded with a denial and accused the Biden administration of "weaponizing federal government agencies in a coordinated effort to target institutions to which they are ideologically opposed."

The FTC alleged that the company and the university told prospective doctoral students that the total cost of GCU's "accelerated" doctoral programs amounted to the equivalent of 20 courses.

"In reality, the school requires that almost all doctoral students take additional 'continuation courses' that add thousands of dollars in costs," the FTC said in a statement at the time.

In June, students launched a class-action suit against the publicly traded company, which once owned the university. The two are now tied through an agreement where the nonprofit university pays the for-profit company a percentage of its revenue in exchange for services, among other links, according to the suit.

Silber said he expected child-care and early-education providers Bright Horizons Family Solutions Inc. and KinderCare Learning Cos. Inc. to also gain from a Trump victory. That's because Vice President Kamala Harris, Trump's presidential opponent, was expected to cap out-of-pocket child-care costs.

Harris had commented at a September event that no family should pay more than 7% of their income on child care.

"While details of this plan were not provided, any type of price cap on an industry could stymie growth and profitability. This risk is likely off the table under Trump," said Silber.

Bright Horizons' stock (BFAM) was up 2% Wednesday, while KinderCare shares $(KLC)$ were up 1%.

KinderCare went public in October. The Lake Oswego, Ore.-based company attempted to IPO in 2022 before pulling the deal. It's now trading on the New York Stock Exchange under the ticker "KLC" after restructuring its business to shed poorly performing centers and seeking out better opportunities in attractive markets.

Silber has an outperform rating on KinderCare stock, while he has a market-perform rating on Bright Horizons.

-Ciara Linnane

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November 06, 2024 13:32 ET (18:32 GMT)

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