Career Education Corp. (CECO) dropped 43% this afternoon after CEO Gary McCullough announced he is resigning and the company posted dismal third quarter results.
An investigation found that schools run by the corporation hadn’t met accreditation standards in 2010-2011. Of 49 schools examined in the art, health and design fields, 36 failed to meet the 65% “placement-rate” standard, which counts students who complete their degree and find a job in their field or a related one.
Chairman Steven Lesnik replaced McCullough as CEO.
Should investors be wary of all of the for-profit educators, given the findings on CECO and the possibility of more regulatory scrutiny for the sector? Competitors like Apollo Group (APOL) were trading lower today, probably on that fear. Morgan Stanley analyst Suzanne Stein says no.
“CECO has a history of accreditation issues and in the current environment, in which accrediting bodies have been under pressure to better police the industry, we do not expect this to be handled with leniency. We note though that this issue appears to be CECO specific and while the whole group is likely to trade off, we would view this as a buying opportunity for companies with better records of regulatory compliance.”
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