Tuesday, July 01, 2008

DeVry (NYSE:DV): Bounce?

Two tier-1 firms are out defending DeVry (NYSE:DV) following yesterday's sell-off:

- Merrill Lynch notes the hares of DeVry were down 12.4%, with the main news being that a 3.1mn block of shares was sold. The rest of the education sector traded down as well on no new news. The sale came as a surprise as DeVry only has four institutional holders that own 3mn shares or more. However, there wasn’t any fundamental news, and the firm believes the decline presents an opportunity for a high-quality name in the education sector. DeVry has also been added to the Russell 1000.

The next catalyst for DeVry will come when it reports 4Q08 (June) earnings on 8/14 after the close. MLCO forecasts diluted EPS of $0.33 in 4Q (+26% YoY) & $1.76 for the year (+86% YoY). Their 4Q forecast is $0.05 below consensus; firm believes the main difference is margin expectations as they expect spend on growth initiatives to ramp sequentially vs. 3Q. However, they believe this will drive future growth and forecast EPS of $2.21 in FY09 (+26% YoY).

Reits Buy and $69 tgt.

- Morgan Stanley notes there is no news coming from the company and they see no reason for the decline (apart from the 3.3 mln share block). While this is likely related to concerns regarding Apollo’s earnings, expected tomorrow after the close, they view Apollo’s problems as company specific and expect little impact on its peers, including DeVry. Firm maintains $62 price target and view the weakness as a compelling buying opportunity. Reits Overweight.

Notablecalls: I think DV represents a nice bounce candidate here. The shares were hit with the block sale & with this now out of the way (block was priced at $56 with the seller being MSCO itself, btw) it's ready to move back up again. My target for the bounce is $56.

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