Second Look: Corinthian shares bounce

NEW YORK—Shares of Corinthian Colleges Inc. ticked higher Wednesday following the previous day's selloff, which came after the for-profit education company posted a fiscal fourth-quarter loss.

Its stock gained 82 cents, or 6.3 percent, to $13.91 in afternoon trading Wednesday. In the previous session, the stock lost $3.12, or 19.2 percent, to $13.09. It has ranged from $6.45 to $18.25 over the past year, and is off 15 percent since year-to-date.

Corinthian said its loss for the quarter ended June 30 narrowed to $620,000, or a penny per share, from a loss of $8.8 million, or 10 cents per share, in the same quarter a year ago. Its adjusted earnings of 11 cents per share topped analysts' target by 2 cents, and Corinthian's full-year forecast was better-than expected.

Shares have also been hurt by concerns the company will have to make more loans to its students, taking on the risks that come with those loans.

Still, Tuesday's selloff was overdone, wrote BMO Capital Markets analyst Jeffrey Silber in a note to clients.

"While in hindsight we should have downgraded this stock as it blew past our prior target heading into earnings, yesterday's selloff provides another buying opportunity," Silber wrote.

Silber raised his full-year 2009 earnings-per-share estimate to 52 cents per share from 50 cents and introduced a fiscal 2010 earnings-per-share estimate of 75 cents. The analyst maintained an "Outperform" rating on the stock, and hiked his price target by $2 to $16. That implies upside of 22.2 percent from its closing price Tuesday of $13.09.

Short-sellers have the fundamentals on the stock wrong, wrote Signal Hill Capital Group LLC analyst Trace Urdan.

"Corinthian Colleges, in our opinion, is demonstrating credible evidence of a meaningful improvement and even acceleration in both its top and bottom- line growth," Urdan wrote. Signal Hill makes a market in Corinthian's stock.

Not all analysts were so enthusiastic.

Robert W. Baird & Co. analyst Amy Junker wrote that the firm was maintaining its "Neutral" rating given "the negative impact student lending is having on bad debt and free cash flow, lower-than-expected cash collections and concerns that guidance could prove to be aggressive."

Bad debt rose to 9.1 percent in the fourth quarter, from 6.2 percent a year ago.

"The company can continue to attract students, but we believe the costs and risks of private lending, especially for students with subprime credit, will keep pressure on gross margins and constrain student starts as the company manages bad debt exposure," wrote ThinkPanmure LLC analyst James Maher.