Credit Suisse Defends DeVry, Says Talk Of Value Trap...Just A Trap

DeVry Education Group Inc (NYSE: DV) has been in the headlines a lot already this year following a Federal Trade Commission complaint regarding its marketing techniques.

According to the complaint, marketing material "deceived consumers about the likelihood that students would find jobs in their fields of study and would earn more than those graduating with bachelor's degrees from other college or universities."

Following these allegations, trading was halted for DeVry Education and subsequently crashed.

Responding to the FTC's suit, DeVry released a public note, stating in part, "DeVry Group has sought to fully cooperate with the FTC staff throughout the FTC's 24-month inquiry, and has provided documentation disproving the FTC's claims and demonstrating the value of a DeVry University education."

Related Link: DeVry Education Responds To FTC Complaint, Notes Its Use Of Statistics In Advertisements Is "Appropriate"

The note included this quote from DeVry president and CEO Daniel Hamburger, "DeVry University is an honorable institution with more than 80-years of providing high quality, career-oriented education […] DeVry Group is confident in our defense and looks forward to demonstrating the accuracy and credibility of our students' career success."

However, the attention DeVry has been receiving is not all negative. According to a research note out Tuesday, Credit Suisse is initiating coverage on DeVry Education.

Credit Suisse: Initiating At Outperform, Price Target Of $29

Credit Suisse began, "Don't be fooled by value trap trappings."

"While the FTC threat is formidable in terms of possible financial judgements and damage to the DeVry brand," Credit Suisse explicated, "we believe it affects only the rate of decline in the core business."

The note continued, "The company's other businesses, which represent the foundation of our valuation case, should remain relatively unaffected. We are sympathetic to the company's claim of FTC overreach and do not consider management practices suspect as a result of the allegations."

Regarding the initiation of coverage, Credit Suisse explained, "Our $29 target price is derived from a sum-of-the parts analysis of the company's various businesses. Realization of this value is predicated on the continued healthy performance of the growing parts of DV's business and renewed confidence in the long-term outlook."

Explicating upon potential upsets to its valuation outline, Credit Suisse said, "An increase in the rate of enrollment decline at DVU or spread of the regulatory action to other DeVry assets could upset our valuation framework."

As a conclusion, Credit Suisse stated, "As an investment vehicle, DeVry's biggest issue at the moment is one of association with a sector that is dramatically out of favor made even more profound by the allegations of deliberate misrepresentation by the company […] As a result, we expect it could take several quarters of positive surprises before a broader swath of institutional investors will be ready to reengage in earnest."

At the time of this writing, DeVry was seen trading up 3.48 percent on the day at $18.71.