Grand Canyon Education Inc.’s (LOPE) third-quarter 2014 earnings of 62 cents a share beat the Zacks Consensus Estimate of 54 cents by 15% and were higher than the company’s expectation of 53 cents by 17%.
Earnings climbed 26.5% year over year due to higher- than-expected enrollment growth, solid revenue increase, strong operating margins and lower tax rate
Grand Canyon Education has been surpassing the Zacks Consensus Estimate on both counts since the past eleven quarters.
Revenues and Enrollments in Detail
Quarterly revenues of $175.1 million were ahead of the Zacks Consensus Estimate as well as the company’s expectation of $169 million by 3.5%. Revenues increased 14.9% from the year-ago levels due to a solid increase in total enrollment.
Total enrollment rose 13.7% from the prior-year quarter to 68,122 students, as both ground enrollment and online enrollment increased in double digits. Total enrollment also exceeded the company’s expectation of 67,000 students. Ground enrollment rose 24.9% year over year whereas online enrollment increased 11.4% in the quarter. New enrollment grew in mid single digits.
Grand Canyon Education has been consistently witnessing strong enrollment growth on the back of its low tuition cost, full time faculty, small class size and efficient service oriented counseling teams. The company’s career-oriented programs have a steady demand among students.
Grand Canyon Education reported a 16.1% year-over-year increase in graduate degree enrollment. Undergraduate enrollment increased 12.2% year over year.
Costs and Margins
Operating margin increased 180 basis points (bps) to 26.3% due to strong revenues, disciplined cost management and lower bad debt expenses. Operating margin exceeded the company’s expectation of 24.7%.
Instructional cost of services of $71.7 million in the third quarter of 2014 increased 10.8% year over year due to an increased number of faculty members to support higher enrollment at the university. As a percentage of revenue, instructional cost of services decreased 150 basis points year over year to 41% due to a decline in bad debt expense. As a percentage of revenue, bad debt expense of 2.2% declined 130 basis points, owing to an improvement in student quality and process.
Outlook Raised
The company raised its guidance for the upcoming quarter and fiscal 2014 on the back of higher revenue expectations. The guidance includes the impact of lower tax rates and lower share count.
For fourth quarter 2014, the company expects net revenue of $184.5 million, compared with the prior expectation $181.6 million. Earnings per share are expected to be 66 cents, higher than the prior expectation of 63 cents. The company maintained the guidance for operating margin at 27.8%. Student count guidance was raised to 67,300, up from the prior expectation of 66,700.
For full year 2014, the company expects net revenue of $685.6 million, higher than the prior expectation of $676.6 million. Operating margin is expected at 26.1%, higher than the prior expectation of 25.7%. Earnings per share are expected at $2.33, higher than the prior expectation of $2.21 per share.
Grand Canyon Education currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the education industry include GP Strategies Corp. (GPX), Capella Education Company (CPLA) and Universal Technical Institute, Inc. (UTI). While GP Strategies and Capella Education sport a Zacks Rank #1 (Strong Buy), Universal Technical Institute carries a Zacks Rank #2 (Buy).
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