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Career Education Corp. shares tumbled to their lowest price in more than a decade on Wednesday, on worries that the for-profit vocational school chain might eventually lose accreditation for some of its schools.
THE SPARK: The Accrediting Commission of Career Schools and Colleges voted to direct 10 of the company's schools to show cause as to why their accreditations should not be withdrawn. The move is related to the commissions previous information requests regarding student placement and employment rates.
THE BIG PICTURE: For-profit colleges are under scrutiny across the nation for low graduation rates and enrolling students who are unable to pay their bills. According to the Department of Education, the 10 percent of students nationwide who attend for-profit schools account for nearly half of all student loan defaults.
BMO Capital Markets analyst Jeffrey Silber said that nine of the schools in question are also accredited by the Accrediting Council of Independent Colleges and Schools.
Late last year that accreditor issued a similar notice for 71 Career Education locations after an investigation by the New York Attorney General showed that the company may have misreported placement and employment data at its health education and art and design schools.
That notice was lifted last month, though 60 of the schools remain under increased oversight by the council, Silber said.
Career Education said it has taken steps in recent months to improve the way it tracks student placement rates, including conducting an independent investigation, setting new guidelines for the way it reports placements to accreditors and hiring 75 more people to help students find jobs.
THE ANALYSIS: Silber said the commission's vote doesn't mean the schools will lose their accreditation. But by Sept.7 the company must provide the commission with outside data for each accredited program, other placement-related analysis and updates on the status of its accreditation with the council.
He backed his "Market Perform" rating and $7 price target for the company, but predicted that its stock would drop on the news.
THE SHARES: Down 50 cents, or 8.1 percent, to $5.71 in afternoon trading, dropping below its previous 52-week low of $5.88. It was the company's lowest share price in about 12 years.