We expect DeVry Education Group Inc. (DV) to beat estimates when it reports second-quarter fiscal 2015 results on Feb 5. Last quarter, the company delivered a positive earnings surprise of 51.6%.
In fact, DeVry has delivered positive earnings surprise in the past four quarters with an average surprise of 19.64%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that DeVry is likely to beat earnings estimates this quarter because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +5.13%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: DeVry carries a Zacks Rank #2 (Buy) which, when combined with +5.13% ESP, makes us confident of a positive earnings beat.
Note that stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Strong revenue growth and margin expansion in DeVry’s healthcare and international segments should mitigate the challenging environment for the flagship DeVry University and drive top and bottom-line growth.
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 all the quarters of fiscal 2013, 2014 and so far in fiscal 2015. Especially, Chamberlain and Ross are gaining from strong demand for jobs in the healthcare sectors across the U.S.
However, the core business — the DeVry University — accounting for almost half of the company’s revenues, has been recording enrollment declines and lower revenues. DeVry University has been witnessing enrollment declines for the past few quarters as a result of an overall economic downturn and lack of student confidence, which has reduced demand. Management expects enrollment declines to continue in the remainder of fiscal 2015 which will lower revenues.
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.
For fiscal second-quarter 2015, the company expects revenues to be down modestly due to enrollment declines at DeVry University and timing shift from Becker One.
In the first quarter, the company launched Becker One, a new curriculum delivery system where Becker students can access content updates on a regular basis. However, the launch was due in the second quarter. The earlier launch will thus hurt second-quarter revenues.
Moreover, lower operating costs in the to-be-reported quarter are expected to offset the impact of softer revenues.
Other Stocks to Consider
Other stocks that have both a positive Earnings ESP and a favorable Zacks Rank are:
Buffalo Wild Wings Inc. (BWLD), with an Earnings ESP of +1.85% and a Zacks Rank #2
United Rentals, Inc. (URI), with an Earnings ESP of +2.63% and a Zacks Rank #3
Dr Pepper Snapple Group, Inc. (DPS), with an Earnings ESP of +5.75% and a Zacks Rank #2.
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