RESEARCH ALERT-UPDATE 1-Lehman rates education services positive

(Adds details, price targets)

July 23 (Reuters) - Lehman Brothers raised its rating on the U.S. education services sector to "positive" from "neutral", and increased the price target on several companies, calling the group defensive performers in a challenging economy.

The brokerage's basic thesis is that the sector represents defensive characteristics, and explained that when people's employment prospects weaken, they consider training to make themselves more employable.

The sector should benefit from drivers like lower risks related to student financing and credit issues that have moderated in recent months and high short interest that will likely fall in the second half of the year, the brokerage said.

The brokerage expects Corinthian Colleges Inc , Lincoln Educational Services Corp , ITT Education Services Inc and Devry Inc to react well to good quarterly results, and expects strong share price moves from all four and also from Apollo Group Inc .

Lehman, which has an "overweight" rating on Corinthian, Apollo and ITT, raised the price target for ITT Educational to $95 from $90. Apollo was boosted to $66 from $64 and Corinthian to $16 from $15.

He said several for-profit education companies in the sector, which had earlier been struggling to retain students, have recently returned to enrollment growth, which should help drive margin gains and strong earnings growth.

Shares of both Corinthian and Apollo closed at $13.61 and $60.34, respectively, Tuesday on Nasdaq. Shares of ITT Educational closed at $88.14 Tuesday on the New York Stock Exchange. (Reporting by Shradhha Sharma in Bangalore; Editing by Bernard Orr)