We have maintained a Neutral rating on
), a provider of secondary and post-secondary education, following
appraisal of third quarter 2012 results.
DeVry's third quarter 2012 earnings of $1.00 per share were in
line with the Zacks Consensus Estimate but down 24.2% from the
prior-year quarter due to lower revenues. DeVry's quarterly
net sales fell 3.9% to $540.8 million from $562.7 million in the
prior-year period due to sluggish student enrollments in the
quarter, especially at DeVry University and Carrington Colleges.
The decline in enrollment is the result of persistent unemployment,
overall economic downturn and subsequent decline in student demand,
heightened competition and modifications made to the business to
comply with new regulations. Revenue declines in the business,
technology and management segments were partially offset by
top-line growth in the medical and healthcare segments.
Overall, we like the company's diversified portfolio of academic
programs which is the company's largest competitive advantage. The
company now offers a balanced portfolio of programs in the fields
of business, healthcare and technology and also serves accounting
and finance professionals. Diversification mitigates risk for the
company while driving growth and attracting and developing talent
across DeVry by offering a broader range of career
Moreover, DeVry's strategy of growing through acquisitions
enables it to diversify into new program areas, levels and
geographies and build high-quality brands to compete in an
increasingly competitive market. DeVry also has a sound long-term
debt-free balance sheet, which offers financial flexibility to the
company to drive future growth and return value to shareholders
through consistent dividend payments and share repurchases.
DeVry faces highly regulated industry conditions. The company is
subject to risks relating to Title IV program integrity
regulations. DeVry derives a significant portion of its revenues
from federal student financial aid programs, referred to as Title
IV programs, which are administered by the Department of Education
(DoE). In order to be eligible for Title IV funds, the company has
to follow certain extensive rules/regulations. These include
maximum student loan default rates, maximum debt-to-earnings ratios
of its graduates, limitations on the proportion of its revenue that
can be derived from federal student aid programs, elimination of
incentive compensation to admissions advisors, standards of
financial responsibility and administrative capabilities. If the
company fails to comply with these rules, its institutions may lose
eligibility to participate in Title IV funds. Educational
institutions are also increasingly under the scanner due to the
rise in abuse of Title IV funds. DeVry's institutions may
lose their eligibility to participate in Title IV programs if their
student loan default rates are greater than DoE's standards.
The company has been witnessing a persistent decline in
enrollments due to continued unemployment, overall economic
downturn and subsequent decline in student demand (due to hesitancy
to take on debt). The competitive landscape is also intense. Going
forward, the company is expecting revenue to be down for fiscal
2012 and flat to slightly down in fiscal 2013.
In order to combat declining profits and student enrolment,
DeVry has undertaken cost-saving initiatives like workforce
reduction and cut down on discretionary spending. Other than that
the company is also working on its marketing efforts to build brand
awareness, making strategic acquisitions aimed at long-term growth,
diversifying into new high demand education programs and investing
in its people to deliver better quality service and education to
its students. All these efforts are expected to bode well for a
rebound on the other side of the sector-wide downturn.
At the end, we prefer to stay on the sidelines until we witness
significant enrollment recovery, which will take some time for most
education companies including DeVry.
DEVRY INC (DV): Free Stock Analysis Report
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