We recently upgraded our recommendation on
Capella Education Company
) from Underperform to Neutral following the better-than-expected
second quarter results.
The second quarter 2012 results were better than Zacks as well
as management expectations. Capella's second quarter earnings of 85
cents, though down from the prior-quarter levels, were
significantly above the Zacks Consensus Estimate of 64 cents.
Better-than-expected revenues boosted the quarter's earnings.
Quarterly revenues also exceeded the Zacks Consensus Estimate and
slipped marginally by 0.2% from the year-ago levels. Revenues
benefited from the lower-than-expected decline in new enrollment
and improved persistence rates. The revenue and enrollment declines
were sufficiently narrower than management's expectations due to
Capella's marketing efforts. In fact, Capella expects new
enrollment growth for the third quarter of 2012 to remain flat or
enjoy a marginal rise.
Overall, Capella University's programs offer a high-quality
educational experience and it drives strong outcomes. Capella also
continuously invests in introducing new programs and specialization
development to provide various courses and improve student
outcomes. Continuous innovation and updating the current courses
will boost enrollments and drive the long-term growth.
In order to improve overall enrollment growth and increase
efficiencies, Capella is also working to build brand awareness for
its university through mass media, social media and strategic
relationships with employers.
Further, the company has undertaken several initiatives to
improve student success rates. For example, the company 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 working adults.
Additionally, the company has provided analytic tools to its
faculty and advisors to help them identify, track, and intervene
when a student is at risk of failing a course.
As a result of these initiatives, the company witnessed an
improvement in overall persistence rates in the first half of 2012.
Though these learner success initiatives and the brand-driven
marketing strategy will hurt revenues, earnings and cash flow in
the near term by increasing expenses, they bode well for the
company's long-term growth by improving learner success and
All these catalysts give us greater confidence in the company's
future growth prospects despite the current tough regulatory and
economic environment. We therefore upgrade our rating on the stock
from Underperform to Neutral.
CAPELLA EDUCATN (CPLA): Free Stock Analysis
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