Recently, the president and CEO of DeVry Inc. (DV), one of the largest providers of higher education services in North America, discussed the company’s growth prospects in the coming years at the BMO Capital Markets’ Back to School Conference. The discussion centered on the company’s strong performance in Brazil and its strategies to improve business at DeVry University and Carrington Colleges Group.
Brazil
DeVry intends to increase its share of the educational market in Brazil, particularly in Northeast Brazil. With a GDP growth of 5.1%, the country is growing at a fast pace and soon there will be a huge demand for skilled labor. There is a disparity between the skills required by the industry and those of students, thus creating a demand for career-oriented programs.
Recently the company acquired Faculdade do Vale do Ipojuca (“FAVIP”). FAVIP, which is based in Fortaleza, Ceará, Brazil will form a part of DeVry Brasil. Following its integration into DeVry Brasil, FAVIP will benefit from the academic expertise of DeVry Brasil, and other infrastructural support. FAVIP is one of the fastest growing educational institutions and will be able to capitalize on the opportunities that will come with this acquisition.
Previously, in February 2012, DeVry acquired the Faculdade Boa Viagem to expand its presence in Northeastern Brazil. By the end of fiscal 2013, the company expects DeVry Brasil to generate revenue in the range of $80 million to $90 million. DeVry Brasil has been seeing strong growth in enrollments, even though the rest of the company is witnessing declines.
DeVry University and Carrington Colleges Group
DeVry has been suffering on account of persistent decline in enrollment due to the weak macroeconomic environment and subsequent decline in demand for courses (due to the hesitancy over taking a loan) in the U.S. Further, modifications made to the business to comply with new educational regulations have also been hurting enrollment growth. Other than enrollment declines, DeVry had a tough time due to heavy investments in scholarships to support students who are facing the brunt of recent cuts to the Pell Grant program.
This was reflected in the company’s performance in the fourth quarter of 2012. One of the largest higher educational institutions in North America, DeVry University reported $301.6 million of revenue, down 15.7% year over year largely due to decline in total undergraduate enrollments.
On the other hand Carrington Colleges Group, which operates under the Medical and Healthcare segments of the company, reported a 19.7% decrease in new enrollment in the fourth quarter of 2012. Total enrollment also declined 25.7% in the fourth quarter of 2012.
In order to improve its performance, Carrington has been focusing on improving its cost structure by streamlining the admission process and raising academic quality. As a result, Carrington now expects to generate positive new enrollment growth in the October quarter of 2012 and generate savings of least $50 million in fiscal 2013.
DeVry expects attractive earnings growth for the period 2014-2016 once the macroeconomic conditions improve. The company is expecting DeVry University to generate modest new enrollment growth in the second half of 2013. Carrington Colleges are expected to return to positive enrollment and revenue growth in fiscal 2013 and gradually grow its enrollments to 2011 levels. All other institutions are expected to maintain their growth momentum for the 2014-2016 period, which the company defines as the recovery phase.
DeVry Inc. carries a Zacks #5 Rank in the near term (Strong Sell rating). We currently have an Underperform recommendation on DeVry Inc. We believe that though management is trying to boost its business and control costs, it might take time for these initiatives to deliver the desired results.
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