Technology

Adtalem (ATGE) Down 20.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Adtalem Global Education (ATGE). Shares have lost about 20.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Adtalem due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Adtalem’s (ATGE) Q4 Earnings Beat Estimates, Enrollment Up

Adtalem Global Education Inc. reported better-than-expected results in the fourth quarter of fiscal 2019. Both the top and bottom lines not only topped the Zacks Consensus Estimate but also improved year over year.

Strong demand, employer partnerships and superior student outcomes were partially offset by top-line challenges faced by Adtalem in Brazil.

In the quarter under review, the company reported adjusted earnings of 97 cents, which surpassed the consensus mark of 96 cents per share by 1%. The said figure also grew 12.8% on a year-over-year basis.

Revenues & Operating Discussion

Revenues of $330.3 million beat the consensus mark of $327 million by 1% and increased 3.3% from the prior-year period. During the fiscal fourth quarter, enrollment of new students increased 2.2% and that of total students grew 4.2% year over year.

Adjusted operating income totaled $70.1 million, reflecting growth of 4.5% year over year. Following the sale of DeVry University and Carrington College during second-quarter fiscal 2019, the company incurred a pre-tax loss of $2.3 million during the reported quarter.

Segment Details

Medical and Healthcare: The segment’s revenues rose 5.2% from the year-ago period to $211.6 million. Chamberlain University’s revenues increased 6.9% from the year-ago level.

In the fiscal fourth quarter, new and total student enrollment grew 2.6% and 2.4%, respectively, from the year-ago period. The upside was mainly driven by growth in Bachelor of Science in Nursing and graduate programs. Particularly in the May session, new and total enrollment rose 2.6% and 1.8%, respectively. In the July session, new student enrollment fell 5% but total enrollment increased 2.3% from the prior-year period.

Medical and Veterinary schools’ revenues grew 3% year over year. New and total enrollment in the May session dipped 0.6% and 6% year over year, respectively.

Adjusted operating income during the quarter was $40.1 million, down 17% from the prior-year level. The decline resulted from elevated marketing-related expenses and a higher level of corporate allocation expense.

Financial Services: Revenues from the segment totaled $53.5 million, up 18.1% year over year. Revenues at Becker increased 8.4% and that of Association of Anti-Money Laundering Specialists climbed 26.8% from the year-ago quarter. Moreover, the segment’s adjusted operating income increased 23.3% from the prior-year period to $16 million.

Business and Law: The segment reported revenues of $66.1 million, down 11.1% year over year. On a constant-currency basis, the metric declined 3.7%, primarily due to higher scholarships and discounts to offset reductions in government financial aid funding.

During the quarter, the company registered adjusted operating profit of $15.3 million, up 2.4% from $14.9 million reported in the prior-year period, backed by reduction in back office and administrative costs.

Liquidity & Cash Flow

As of Jun 30, 2019, Adtalem had cash and equivalents of $299.4 million compared with $430.7 million on Jun 30, 2018. At the end of the fiscal 2019, cash provided by operating activities totaled $204.9 million, down from $239.2 million in the comparable year-ago period.

In fiscal 2019, the company repurchased approximately 5.31 million shares of common stock for $252.9 million, at an average purchase price of $47.65.

Fiscal 2019 Highlights

In the fiscal 2019, the company reported adjusted earnings of $2.82 per share, up 1.4% from the fiscal 2018 level. Revenues during the said period also grew 0.7% year over year to $1,239.7 million. In addition, adjusted operating income of $215.7 million rose 1.5% from the prior-year level.

Fiscal 2020 Guidance

Total revenues are projected to grow 5-7% from a year ago. Moreover, adjusted earnings per share are anticipated to grow 7-9% from the prior year. Capital spending is expected to be nearly $45-$50 million. The effective income tax rate for the fiscal year is likely to be within 17-18%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -15.43% due to these changes.

VGM Scores

At this time, Adtalem has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Adtalem has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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