On Oct 5, Zacks Investment Research upgraded
Capella Education Company
), a provider of online post-secondary education, to a Zacks Rank
#1 (Strong Buy) ahead of the third-quarter results due later this
Why the Upgrade?
The Capella stock gained significant momentum after it
announced strong second-quarter 2013 results on Jul 24.
Capella's second-quarter 2013 earnings of 83 cents per share
surpassed the Zacks Consensus Estimate on the back of
better-than-expected top-line growth. Though declining year over
year, revenues exceeded the Zacks Consensus Estimate. Moreover,
the top-line decline was much narrower than management's
expectation on the back of better-than-expected enrollment
growth. New enrollments grew 12.7%, far exceeding management's
expectation of sequentially flat results. New enrollments
benefited from double-digit percentage growth in all degrees.
Margins also exceeded management's expectations in the quarter
driven by top-line growth and cost savings.
The Zacks Consensus Estimate for fiscal 2013 increased almost
6% and that for 2014 moved up 5% over the last 90 days helped by
the solid second-quarter results.
We believe that Capella's brand-driven marketing strategy and
initiatives to improve learner success rates led to the fantastic
second-quarter results. In order to improve overall enrollment
growth and increase efficiencies, the company is moving away from
a direct marketing aggregator channel to a relationship and
brand-driven marketing strategy. This is also aimed toward
building greater awareness and preference for Capella.
Further, in order to improve student success rates, Capella
has refined its marketing strategy to attract students who are
more likely to carry on with the course. It is also creating
innovative learning technologies, which will meet the needs of
the working adults. Further, the company has provided analytical
tools to its faculty and advisors to help them identify, track
and intervene when a student is at risk of failing a course.
Further, continuous innovation and efforts to update courses are
Capella is due to report third-quarter 2013 results on Oct
22. For the third quarter of 2013, revenues are expected to
remain flat or increase up to 1%. Operating margin is expected in
the range of 8% to 9% for the quarter. We believe that the
learner success initiatives and the brand-driven marketing
strategy will continue to support growth in the third quarter as
Moreover, Capella Education was approved by the Department of
Education for a competency based degree in August. The program
focuses on learning as opposed to meeting credit hour standards.
Other universities are applying for similar status. This movement
may help to reduce the cost of education and drive
Other Stocks to Consider
Other education companies that carry a Zacks Rank #1 (Strong
Apollo Group, Inc.
TAL Education Group
APOLLO GROUP (APOL): Free Stock Analysis
ATA INC-ADR (ATAI): Free Stock Analysis
CAPELLA EDUCATN (CPLA): Free Stock Analysis
TAL EDUCATN-ADR (XRS): Free Stock Analysis
To read this article on Zacks.com click here.