On May 31, we maintained a Neutral recommendation on the
for-profit education company,
), despite disappointing third-quarter fiscal 2013 as we have
faith in the company's long term fundamentals.
Why the Neutral Recommendation?
After delivering solid results in the first two quarters of
fiscal 2013, DeVry's third-quarter results (announced on Apr 23)
were somewhat disappointing. The company beat earnings but missed
out on revenues as the improving new enrolment trends seen in the
past two quarters could not be sustained.
DeVry's third-quarter fiscal 2013 adjusted earnings of 90
cents per share beat the Zacks Consensus Estimate of 83 cents by
8.3%. Lower operating expenses drove the earnings beat despite
the top-line decline. Earnings, however, declined 10% from the
prior-year quarter due to lower year-over-year revenues.
DeVry's quarterly net sales fell 5.9% year over year to $509
million largely due to weak enrollment growth, especially at the
flagship DeVry University. Revenues also missed the Zacks
Consensus Estimate of $517 million.
The company's total post-secondary enrollments across all its
programs were down 6.7% from the prior-year quarter. In-fact,
enrollments have declined across the entire higher education
system in 2012 in the U.S. New enrollments also declined 6.4% in
the quarter, much weaker than a positive growth of 5.6% in the
second quarter. Enrollments declined significantly at the
flagship DeVry University as a result of overall economic
downturn, continued unemployment and lack of student
Encouragingly, however, the company increased its fiscal 2013
cost savings target from $80 million to $100 million. In fact,
the cost savings target has now been increased for three
We have faith in the company's long term fundamentals. Its
diversified portfolio of programs and regular strategic
acquisitions give it a competitive advantage. The company
is also seeing continued strength in its healthcare and
international businesses. Moreover, the performance-improvement
plan to align costs, regain enrollment growth and make growth
investments looks impressive.
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; improving its technology;
and improving affordability through scholarships and pricing.
DeVry University has over 200 corporate/government partnerships;
150 are with Fortune 500 companies like
Wal-Mart Stores Inc.
). As part of its turnaround plan, DeVry has also undertaken
cost-saving initiatives like workforce reduction and has curbed
discretionary spending in order to combat declining profits and
decreasing student enrolments. 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.
We, however, prefer to remain on the sidelines until we see
improving enrollment trends at DeVry University. The continued
challenged regulatory environment also remains a persistent
Other Stocks to Consider
DeVry carries a Zacks Rank #3 (Hold). Other education
companies worth a look are
New Oriental Education & Technology Group
), carrying a Zacks Rank #1(Strong Buy) and
Grand Canyon Education, Inc.
) which carries a Zacks Rank #2 (Buy).
DEVRY INC (DV): Free Stock Analysis Report
NEW ORIENTAL ED (EDU): Free Stock Analysis
GRAND CANYON ED (LOPE): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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