GCU is unique among Christian schools in that it is for profit, running primarily on investments rather than tuition and donations. GCU made the switch from a non-profit model after it ran up $20 million in debt and otherwise would have had to close down its Phoenix campus, Mueller said.

Instead, GCU drew up a business model and sought investors. The combination of a for-profit model and a commitment to Christian higher education has produced tremendous efficiency and growth, allowing GCU to keep tuition low—only $16,500 per year. After scholarships, though, the average student pays around $7,800, Mueller said.

Bill Ringenberg, Taylor University historian of Christian colleges, says this low tuition rate for a private, Christian university falls far below the benchmark standard set by public, state schools.

“I’ve been dreaming over the years of a lower-cost Christian model, and the benchmark was the idea of a Christian college in every region which would be as cheap and as inexpensive as the state university in that region,” he said. “It’s quite rare; what Grand Canyon is doing is innovative.”

• Believe the announcement was in line with most investors’ expectations. LOPE was previously named one of two finalists to receive the campus, and we believe most investors viewed LOPE as the likely recipient.
• Represents significant expansion of LOPE’s ground campus strategy. LOPE plans to open the Northfield, MA campus in the fall 2014 with ~500 students, potentially expanding to 5,000 students by 2018 (in addition to 6,500 ground students at its Phoenix campus, which it expects to expand to 15,000).
• View the announcement as a “doubling down” on LOPE’s successful ground campus strategy. Could further strengthen the Grand Canyon brand in the Northeast (LOPE’s second-largest geography for online enrollment behind the Southwest) or provide a platform to create a new regional brand, and leverages LOPE’s infrastructure, platform, systems, operational expertise, etc.
• Management expects to invest up to $150 million in the campus over five years, beginning in the spring or summer 2013.Maintaining our estimates at this time. Modest 2013-2014 EPS dilution possible from lease payments, property tax, initial headcount additions, etc. (but we believed our prior estimates were potentially conservative).
  • We are encouraged that management appears to be taking a cautious approach to leverage the optionality of the campus. Further, timing of ramp up in capex investment in Northfield, MA should largely coincide with ramp down in growth capex requirements of Phoenix, AZ campus.
• Increasing our price target to $26 (largely due to recent comps multiple expansion), reflecting 16.3x our 2013 EPS estimate; historical average NTM P/E has been 16.4x.