On Oct 7, we maintained a Neutral recommendation on the
for-profit education company,
), due to mixed fourth-quarter fiscal 2013 results announced on
Why the Neutral Recommendation?
DeVry's fourth-quarter fiscal 2013 adjusted earnings of 54
cents per share beat the Zacks Consensus Estimate of 41 cents per
share by 31.7%. Lower operating expenses drove the earnings beat
for this for-profit education company despite the soft revenues.
Earnings also improved 3.8% from the prior-year quarter.
However, net sales fell 4.4% year over year to $480 million.
The decline was the result of the relatively strong growth in the
healthcare and international businesses being offset by continued
revenue decline at the flagship DeVry University which accounts
for half of the company's revenues. Revenues were in line with
the Zacks Consensus Estimate of $480 million.
The company's total post-secondary enrollments across all its
programs were down 6.0% from the prior-year quarter. DeVry has
been witnessing persistent enrollment declines, mainly at DeVry
University, as a result of overall economic downturn and lack of
student confidence which has reduced demand.
Moreover, management expects weak enrollment trends and
revenue decline at DeVry University to outweigh further cost
savings and growth in other institutions in fiscal 2014 as
Following the sluggish enrollment trends at DeVry University
and the dampened outlook for fiscal 2014, estimates were largely
revised downwards. The Zacks Consensus Estimate for fiscal 2014
went down by 6% while that for fiscal 2015 declined 8.4% over the
last 60 days.
However, we have faith in the company's long-term
fundamentals. Its diversified portfolio of programs, regular
strategic acquisitions and a debt-free balance sheet 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 look
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 400 corporate/government partnerships;
of which many 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
Apollo Group, Inc.
). Both the companies carry a Zacks Rank #1 (Strong Buy).
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