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School operator gets F from investors for lending to students

Shares fall 19% after Corinthian Colleges reveals loan program.

August 27, 2008|From Bloomberg News

Shares of Corinthian Colleges Inc. dropped after the operator of colleges and trade schools said it began making loans to students, raising concern that costs would erode earnings.

Corinthian shares fell $3.12, or 19%, to $13.09, the biggest percentage decline since Jan. 22, when SLM Corp. quit making higher-risk loans to students. The Santa Ana company has established a lending program for students with poor credit who can't borrow from SLM, known as Sallie Mae, Corinthian said.

Investors fear Corinthian will have to write off some of the loans and won't meet its fiscal 2009 earnings forecast of 58 to 63 cents a share, said Jeffrey Silber, an analyst with BMO Capital Markets Corp. in New York.

"It adds risk to the forecast," Silber said. "People were expecting sizable margin expansion and this is going to put a damper on that. People are not giving them the benefit of the doubt."

In fiscal 2009, Corinthian will spend on student loans all of its available cash that isn't earmarked for capital expenditures, Chief Financial Officer Kenneth Ord said Tuesday.

The company's net loss narrowed to $620,000, or 1 cent a share, for the fiscal fourth quarter ended June 30, from $8.76 million, or 10 cents, a year earlier. Income from continuing operations was $4.76 million, or 6 cents a share, compared with a loss of $2.09 million, or 2 cents, as enrollment increased.

Corinthian Colleges Chief Executive Jack Massimino said fiscal 2008 was marked by "the most challenging student financing environment in the company's history."

"We established a new company-sponsored student lending program, Access, and thus far have arranged financing for the vast majority of students," Massimino said.

Revenue for the fourth quarter rose 18% to $274 million.

Earnings for the fiscal first quarter ending in September will be 6 to 8 cents a share, the company said. Analysts surveyed by Bloomberg had predicted an average of 8 cents a share.

Corinthian runs post-secondary programs at more than 100 schools in the U.S. and Canada.

Corinthian also said Tuesday that Leon Panetta, 70, former chief of staff to President Clinton, would join its board. The move expands the board to 11 members.

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