Through the Cycle - IBISWorld

18
Education
We are very cold and introspective on education at the moment.
According to IBISWorld’s July special report, budget
pressures threaten public schools, the testing and educational
support services, colleges and universities, and a whole host
of other education-related industries. On the other hand, one
area that we are relatively sanguine on is trade and technical
schools, which tend to be countercyclical.
Be alert, though, because the risk of lending to the once
high-flying for-profit universities is expected to escalate (for
more on this, see the IBISWorld article on for-profit universities
in the November 2011 RMA Journal 8 ). This industry has
seen its reputation suffer as a result of controversial practices
that accompanied its recent surge in growth.
For-profit universities, also called proprietary colleges,
have a unique place in the education world. Unlike traditional
public and private institutions, these schools are
publicly traded. By investing a huge proportion of dollars
into marketing, for-profit universities have attained massive
enrollment rates. On the basis of revenue and enrollment
numbers alone, the steady growth of these universities
makes the industry enticing for lenders. However, even
though their growth status allows them to rise above nonprofit
schools in terms of profit and revenue, for-profit universities
are coming under increased government regulation.
So beware.
Health Care
Though typically considered a low-risk industry characterized
by low unemployment and smooth growth, health care
finds itself in the murky waters of low returns. Several factors
present challenges, notably the relentlessly rising costs
and lingering doubts over the course and effectiveness of
the Obama administration’s health care initiatives.
The jury is still out on how health care reform will affect
Medicare and Medicaid. In the August 2011 issue of
Commercial Insights, 9 IBISWorld colleague Sophia Snyder
identified the top 10 health care industries that garner the
highest share of revenue from private insurance companies.
Lending to these industries is a definite hedge against uncertainties
in funding Medicare and Medicaid:
“… the Department of Health and Human Services
December 2011–January 2012 The RMA Journal
(HHS) released health insurance exchange rules that
will govern how states set up and run marketplaces
where individuals and small businesses can shop for
health insurance coverage. This new framework will
impact several industries that derive a significant percentage
of revenue from private insurance coverage.
In the next five years, IBISWorld forecasts the top 10
industries to see additional growth in revenue and
operating profit as a result of the new rules…” (see
Table 8).
Table 8
Health Care Revenues
Health Care Industry Revenue % from Private Insurance
Specialist doctors 55.5%
Primary care doctors 55.0%
Podiatrists 51.5%
Dentists 45.0%
Diagnostic and medical laboratories 43.5%
Pharmacies and drug stores 42.0%
Ambulance services 40.0%
Emergency and other outpatient care centers 37.5%
Hospitals 34.5%
Mental health and substance abuse centers 25.0%
Source: IBISWorld, Inc.
Despite the changing face of traditional health-carerelated
businesses, however, risks remain low. After all, no
pain, no gain. Some of the juiciest areas are found in Table 9.
Table 9
Industry
(5-Digit NAICS)
Growth Areas in Health Care
Revenue 2011 MM$
5-Year Average
Growth 2011-15
Capital Intensity
Dentists 109,494 3.5% Medium
Optometrists 13,140 2.3% Low
Physical therapists 27,401 6.9% Low
Podiatrists 4,637 3.6% Low
Alternative health
care providers
Mental health &
substance abuse clinics
Emergency & other
outpatient care centers
Diagnostic & medical
laboratories
11,595 4.3% Low
11,810 3.7% Low
86,660 5.0% Medium
46,759 4.2% Medium
Ambulance services 13,934 5.4% Low
Blood, organ & ambulatory
health services
10,545 7.0% Low
Hospitals 756,952 4.1% Medium
Specialty hospitals 36,193 5.8% Low
Mental retardation
facilities
Mental health &
substance abuse centers
Elderly & disabled
services
20,842 3.0% Low
9,408 2.6% Low
28,137 6.2% Low
Source: IBISWorld, Inc.