UPDATE: Corinthian's 2Q Profit Leaps; Reform Remains Concern

Corinthian Colleges Inc.'s (COCO) fiscal second-quarter earnings more than doubled, as a larger student body boosted revenue and spread out costs, but a darkening cloud of reform continued to hang over shares as analysts said management didn't do enough to assuage investor concerns.

Despite beating its guidance for the quarter, raising its fiscal-year view and announcing a third-quarter view that also topped Wall Street's expectations, shares still fell, dropping 5% to $13.63 in recent trading.

Analysts said investors remained fixated on possible reform from the Department of Education that could crimp for-profit education earnings, as the department looks to reduce the amount of debt carried by graduates.

The bulk of the worries comes from a discussion in a proposal about so-called gainful employment, which fundamentally questions how well schools prepare their students for real-world jobs that can cover their debt. Graduates have accused some for-profits of high tuitions and high default rates, leading investors to wonder if for-profit colleges will be targeted by the Department of Education.

Corinthian offers diploma programs that train students for entry-level fields in health care, mechanical trades and criminal justice. Chief Executive Peter Waller said on the conference call, according to a transcript from FactSet Research, that Corinthian continues to express its concern about proposed regulation and admitted it's in "a state of flux."

"We will join forces with other institutions and with our trade association to make our views known," Waller said. "We just believe that this ambiguity is not good for our students, it's not good for employees and it's not good frankly for the agenda of the Obama administration."

Analysts' concerns weren't assuaged by Waller's comments

"These gainful employment proposals have folks pretty spooked," Signal Hill Group analyst Trace Urdan said, adding that Corinthian executives could only say that the core medical assisting program would pass the proposed standards, leaving other programs in doubt. "They very clearly laid out a political strategy dealing with the new regulation, all of which is terrific, but they left investors with the impression that that is the principal way of dealing with this."

Urdan said that failed to convince investors that they were prepared to make changes if the regulation passes, as some other companies have done, and that not all their plans seemed credible.

Stifel Nicolaus analyst Jerry Herman also said reform remains a concern.

"The company has devoted substantial resources to improving student outcomes and have come a long way," Herman said. "But they still have a lot to do."

The company again raised fiscal-year targets, boosting its earnings guidance 8 cents to $1.63 to $1.68 a share and its revenue view by $120 million to $1.74 billion to $1.76 billion.

In the current quarter, it expects earnings of 45 cents to 47 cents a share on revenue of $470 million to $480 million, compared with 44 cents and $431 million, respectively, predicted by analysts surveyed by Thomson Reuters.

For the quarter ended Dec. 31, Corinthian reported earnings of $39.4 million, or 44 cents a share, up from $15.1 million, or 17 cents a share, a year earlier, and topping its October guidance of 37 cents to 40 cents.

Revenue increased 30.2% to $414.3 million, also beating the October view of $395 million to $405 million. Operating margin jumped to 15.6% from 8.7%.

New student starts increased 11%, slightly better than the company projected, as its total student population grew 22%. But RBC analysts pointed out that excluding the recent acquisition of Heald College, that enrollment growth seems slight compared with others in the industry.

The for-profit industry has seen leaping enrollment from the rising unemployment rate, as Corinthian competitor DeVry Inc. (DV) reported last week. RBC said in a note that Corinthian's enrollment disappointed and would keep shares behind.

-By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com

(Joan E. Solsman contributed to this article.)

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