On Nov 28, we maintained a Neutral recommendation on the
for-profit education company,
), due to mixed first-quarter fiscal 2014 results announced on
Why the Neutral Recommendation?
DeVry's first-quarter fiscal 2014 adjusted earnings of 22
cents per share missed the Zacks Consensus Estimate by a penny
and declined 57.7% year over year due to higher operating
Revenues declined 6.0% year over year to $450.9 million as
strong growth in the healthcare and international businesses was
offset by yet another revenue decline at the struggling flagship
DeVry University which accounts for half of the company's
revenues. Revenues, however, beat the Zacks Consensus Estimate of
The company's total post-secondary enrollments across all its
programs were down 4.4% from the prior-year quarter. DeVry has
been witnessing persistent enrollment declines, mainly at its
flagship DeVry University, as a result of overall economic
downturn and lack of student confidence in the employment
Though student starts were better than expected at DeVry
University for the September session, they are expected to
decline again in the November session due to business disruption
related to government shutdown in October. Moreover, management
expects weak enrollment trends and revenue decline at DeVry
University to continue in fiscal 2014 as well.
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, DeVry 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
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
We, however, prefer to remain on the sidelines until we see
substantial enrollment growth at DeVry University. The continued
challenged regulatory environment also remains a persistent
Other Stocks to Consider
DeVry carries a Zacks Rank #3 (Hold). Better-ranked stocks in
the education sector include
ITT Educational Services Inc.
New Oriental Education & Technology Group
). Both the companies carry a Zacks Rank #1 (Strong Buy).
DEVRY EDUCATION (DV): Free Stock Analysis
NEW ORIENTAL ED (EDU): Free Stock Analysis
ITT EDUCATIONAL (ESI): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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