On Dec 24, we issued an updated research report on DeVry Education Group Inc. (DV).
DeVry is a high quality company. Its diversified portfolio of programs, regular strategic acquisitions and a debt-free balance sheet give it a competitive advantage. Its performance improvement plan to align costs, regain enrollment growth and make growth investments is also yielding results.
DeVry’s revenues and earnings are being driven largely by its healthcare and international businesses — Chamberlain, Ross, Becker and DeVry Brasil. These institutions have shown significant improvement in revenues and profitability in fiscal 2013 as well as 2014. Especially the healthcare institutions, Chamberlain and Ross, are gaining from strong demand for healthcare jobs across the U.S. With strong growth witnessed over the last two years, management believes the medical and healthcare, and international segments are poised to increase organic revenues and operating income at a double-digit pace over the next three to five years. In fact, these businesses are expected to contribute a progressively larger portion of revenues/earnings in fiscal 2015.
However, DeVry University — the core business that accounts for almost half of the company’s revenues — has been recording enrollment declines and lower revenues. Enrollments have been going down due to weak macroeconomic environment and subsequent decline in student demand (due to the hesitancy over taking a loan). DeVry University starts have been declining for several years and are expected to remain a challenge in the near term as well since prospective students are apprehensive of pursuing a higher degree and the job market. The competitive landscape is also intense. In order to boost enrollment growth, the company is offering scholarships and other operational initiatives. However, such efforts put pressure on revenue per student and thereby, profitability.
We prefer to remain on the sidelines until the Business, Technology and Management segment — which includes operations of the DeVry University — shows sustained enrollment growth and improved profitability. However, this is unlikely to happen even in fiscal 2015.
Stocks to Consider
DeVry carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the education industry include Strayer Education, Inc. (STRA), Capella Education Company (CPLA) and Grand Canyon Education, Inc. (LOPE). All these companies sport a Zacks Rank #1 (Strong Buy).
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