DeVry Inc. (DV) is set to report its fourth-quarter and fiscal 2013 results on Aug 8. Last quarter, it posted an 8.4% positive surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
After delivering solid results in the first two quarters of fiscal 2013, DeVry’sthird-quarter results were somewhat disappointing. The company beat earnings but missed out on revenues as the improving new enrolment trends seen in the past two quarters could not be sustained.
DeVry has been witnessing persistent enrollment declines as a result of the overall economic downturn, continued unemployment and lack of student confidence. Especially, enrollments have declined significantly at its flagship DeVry University.
In fact, enrollments have declined across the entire higher education system in 2012 in the U.S. Large education companies like Apollo Group, Inc. (APOL) have been witnessing declining enrollments since the past many quarters.
We do not expect to see any major improvement in enrollment trends at DeVry University in the fourth quarter. However, we believe DeVry’s healthcare and international institutions, Chamberlain, Ross, Becker and DeVry Brasil, will continue to show positive growth. Costs will continue to go down, pushing margins upwards.
In fiscal 2013, revenues are expected to decline from the 2012 levels. Total operating costs are expected to decline year over year in the range of 1%-2% in fiscal 2013, due to significant cost management at its transition institutions like DeVry University and Carrington Colleges.
Earnings Whisper?
Our proven model does not conclusively show that DeVry is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.0%.
Zacks Rank #3 (Hold): DeVry’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a 0.0% ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the services sector that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Grand Canyon Education, Inc. (LOPE), with Earnings ESP of +2.27% and a Zacks Rank #2 (Buy).
Student Transportation, Inc. (STB), with Earnings ESP of +16.67% and a Zacks Rank #3 (Hold).
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