On Mar 18, Zacks Investment Research downgraded
Capella Education Company
) to a Zacks Rank #5 (Strong Sell) due to tepid fourth quarter
results and a disappointing outlook for the upcoming first
quarter of 2013.
Why the Downgrade?
Capella Education Company witnessed sharp downward estimate
revisions after reporting tepid fourth-quarter 2012 results. On
Feb 12, Capella Education reported fourth-quarter earnings per
share of 73 cents, missing the Zacks Consensus Estimate by a
penny and the year-ago earnings by 16.4%.
Year-over-year decline in revenues and margins proved to be a
drag on earnings. Revenues slipped 2.7% year over year in the
quarter. Better-than-anticipated new enrollment growth could not
offset the downward drift in earnings. On the other hand,
operating margin contracted due to increase in bad debt expenses.
Sluggish macroeconomic conditions and low employment levels have
been taking a toll on private education companies like Capella
Apollo Group Inc.
) by adversely affecting enrollment. The outlook for the upcoming
quarter was also quite weak. Though the company expects new
enrollment to rise 5% in the first quarter of 2013, total
enrollment is expected to decline 3% to 4% from the prior-year
quarter, which is expected to result in 4.5% to 5.5% decline in
total revenue. Revenue per student is also expected to decline 2%
due to fewer grants and change in mix.
Operating margin is expected to be in the range of 12.0% to
13.0%, down from 16.4% in the prior-year quarter due to decline
in total enrollments.
Majority of the estimates of this education company have been on
a downtrend for the past 60 days, with declining top-line growth
rates and operating margin anticipated for the upcoming first
The Zacks Consensus Estimate for 2013 decreased 10.8% to $2.48
per share over the last 60 days. For 2014, most of the estimates
were revised downward over the last 60 days, sinking the Zacks
Consensus Estimate by 17.7% to $2.75 per share.
Other Stocks to Consider
Not all education stocks are performing as poorly as Capella
Education. Education stocks such as
Grand Canyon Education, Inc.
) are currently performing well and are worth considering. Both
hold a Zacks Rank #2 (Buy).
APOLLO GROUP (APOL): Free Stock Analysis
CAPELLA EDUCATN (CPLA): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
GRAND CANYON ED (LOPE): Free Stock Analysis
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