DeVry (DV) Thrives as Unemployment Spreads

Devry UnemploymentThe unemployment rate continues to climb as the credit crisis has the global economy in a vice. This week’s jobless claims rose by about 542,000, which equates to an unemployment rate of 6.5%, the highest in 16 years. Today, President Bush signed into law a package that will extend unemployment benefits for many struggling job seekers. This is the seventh time that unemployment benefits have been temporarily extended in the last 50 years. Essentially, those job seekers whose benefits (generally about $300 per week) were about to expire will get a reprieve as the prospects for job growth are dim. Not included in these numbers are workers who are being asked (read told) to work fewer hours. The story on unemployment is unlikely to improve for at least a few months, as Goldman Sachs (GS) released dire predictions for the economy going forward saying the unemployment rate could be as high as 9% by the fourth quarter of 2009.

It may sound crass but even as employers are shedding workers, there are businesses looking for motivated job seekers hoping to improve what they have to offer the public. One of the first industries which comes to mind is educational and vocational training schools, such as DeVry Inc (DV). DeVry University and its affiliates are in the business of training people for new careers in various fields. As the jobless rate continues to rise and stints on unemployment last longer, it is logical to assume that many of the jobless will be inclined to either improve their skills or start a new career altogether.

DeVry IncOver the last six months the broad market has fallen about 44%, but the 19 companies that Ockham Research covers in the Education and Training Services group is only down 19% on a market cap weighted basis. If the first year of the credit crisis is a guide, an extended recession will lead to increased business for DeVry and others in the sector. DeVry’s fiscal first quarter results (period ended September 30th) showed impressive revenue gains of 21.3% and cash earnings increased by a whopping 29.8%. The company reported 17,800 graduate course takers for the September session, which is an increase of 12% from last year. Analysts’ estimates are for continued earnings growth of 24.3% for the full year. These signs of growth led to to make DeVry its Stock of the Week this week (Lookin’ Fly In DeVry).

Investors fearful of an extended recessionary environment might want to look for a stock that could benefit from economic contraction. DeVry is classified as Fairly Valued by our fundamental valuation methodology, but it may be able to provide shelter from the storm, so to speak. Its business has been growing in this environment and is projected to continue to grow; the stock is relatively uncorrelated to the market with a beta of just 0.43, to boot. The stock caught the late week rally to go up near $52. While we are not buyers at current price levels, it might be a good defensive play should it fall back to the mid $40’s.

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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