On Mar 18, we maintained a Neutral recommendation on leading
higher education provider,
), despite solid second-quarter fiscal 2013 results as we await
enrollment growth at its flagship DeVry University. The company
carries a Zacks Rank #2 (Buy), reflecting the impressive results
in the second quarter.
Why the Neutral Recommendation?
On Feb 6, 2013, DeVry announced its second-quarter fiscal 2013
results. Adjusted earnings of 87 cents per share significantly
beat the Zacks Consensus Estimate by 53%. Lower operating
expenses and positive new student enrollment growth of 5.6% drove
the earnings beat. Earnings, however, declined 5% from the
prior-year quarter due to lower year-over-year revenue.
Revenue also beat the Zacks Consensus Estimate, attributable
to solid new and total student enrollment growth at its
healthcare institutions, which gained from higher demand.
However, DeVry's revenues fell 3.6% year over year to $505
million due to lower year-over-year enrollment growth.
Continued progress on its performance improvement plan to
align costs, regain enrollment growth and make growth
investments, has helped the company beat expectations in both the
quarters of fiscal 2013; a turnaround from weak quarterly results
in fiscal 2012.
In order to combat declining profits and student enrolments,
DeVry has undertaken cost-saving initiatives like workforce
reduction and curbed discretionary spending. Additionally, in
order to revive enrollment growth, the company is working on its
marketing efforts to build brand awareness; building
relationships with high schools, community colleges,
corporations, and government/military institutions; and improving
DeVry is also making targeted investments to drive future
growth like opening new campuses, diversifying into new high
demand education programs and investing in its faculty.
Moreover, its diversified portfolio of programs and regular
strategic acquisitions give it a competitive advantage.
Following the earnings and revenue beat in the second quarter,
estimates largely moved upwards over the past 60 days. The Zacks
Consensus Estimate for 2013 went up a robust 22.3% to $2.63 while
that for 2014 increased 9.8% to $2.69 over the last 60 days.
DeVry is currently outperforming many other education
Apollo Group, Inc
ITT Educational Services Inc.
) which have been consistently reporting weak enrollment growth.
We however prefer to remain on the sidelines until we see
improving enrollment trends at its flagship DeVry University.
DeVry has been witnessing a persistent decline in enrollments,
mainly at its flagship institution, DeVry University due to the
weak macroeconomic environment and subsequent decline in student
demand (due to the hesitancy over taking a loan). In fact,
enrollments have declined across the entire higher education
system in 2012, in the United States.
The competitive landscape is also intense. Moreover, the
continued challenging regulatory environment remains a persistent
overhang. We, therefore, prefer to remain on the sidelines until
we see improving enrollment trends at DeVry University.
Other Stocks to Consider
Another education company worth a look is
Grand Canyon Education, Inc.
), which carries a Zacks Rank #2 (Buy).
APOLLO GROUP (APOL): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
ITT EDUCATIONAL (ESI): Free Stock Analysis
GRAND CANYON ED (LOPE): Free Stock Analysis
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