Notable Calls

Credit Suisse is downgrading Apollo, ITT and Lincoln to Neutral from Outperform due to rising concerns of a more challenging Legal/regulatory environment.

Although they are not clear on how the sector will react to earnings season, the firm believes the consensus EPS estimates are approaching levels that leave very little room for upside.

After last nights announcement that the Department of Education has hired Bob Shireman as deputy undersecretary to advise the Department on college fiancial issues and other higher education initiatives coupled with channel checks the firm has done in the last few days they believe that more DOE program reviews is now the "best case scenario".

The firm has worries that proposals could seek to tighten restrictions on incentive compensation/marketing practices; make it easier for students to withdraw from school quickly when they want to; or require colleges to disclose more “qualityrelated” metrics, such as life-time Federal student loan default rates. Although the progression of such proposals is unpredictable the firm thinks their mere existence would weigh on the sector’s valuation multiple. Further, the probability that the proposals will result in legal/regulatory changes is higher than it would have been in years past, as they think the Democratic administration, and Shireman specifically, are likely less sympathetic toward the for-profits than the Bush administration was.

Notablecalls: Education stocks have already gotten hit pretty hard in pre-market trading and it is hard to find a good entry so I will wait and see if a possibility arises.

PS: APOL also removed from CSFB U.S. focus list.