The hits just keep coming in the for-profit education space as increased government scrutiny as well as questions over the value of these degrees have sunk
confidence in stocks in this sector. In fact, the space is currently in the bottom half of the Zacks Industry Rank, while companies like Capella Education
(CPLA) have really struggled at earnings season and have epitomized this poor trend.
CPLA in Focus
Companies like Capella have long benefited from the boom in online education thanks to its wide variety of degree programs, and intense demand following
the Great Recession. And the stock was actually a great investment in both this time frame, and in late 2013-2014 too. However, the space has become rife
with problems and shares have cratered in the past few months as shares have fallen more than 40% so far in 2015.
In fact, CPLA stock is off almost 10% since its latest earnings report and there are few reasons to be optimistic heading into 2016. Revenues missed
estimates thanks to a shift in the degree mix, while the company is projecting low to no growth in the near term as well. Add up all these factors and
analysts certainly haven’t liked what they have seen for the stock, slashing their estimates as of late.
Recent Estimates
In the past week, estimates have universally gone lower including no fresh estimates higher for either the current year or next year time frames. The
magnitude of these estimate changes has also been less than inspiring, as we have seen a nearly 3% decline in the Zacks Consensus Estimate for the next
year time frame, while the coming quarter consensus estimate has fallen by over 6.7% too.
And it isn’t like CPLA has had an amazing streak at earnings season either, as they seem to just barely meet expectations. Over the past four quarters we
have seen an average surprise of just under 2%, while we have seen just one double digit positive surprise over the past two years for CPLA.
Overall, the prospects aren’t looking great for CPLA in the near term and that is why we have a Zacks Rank #5 (Strong Sell) on the stock right now. And
while shares have fallen quite a bit, we are still nowhere near the lows for the stock over the past few years, and with all the competitive pressures the
company is facing, it may be wise to watch out for these lower prices in the near term.
Other Choices
Fortunately for investors, there are other choices that might be better options right now in the schools industry. In particular, New Oriental Education ( EDU) might be a better choice thanks to its Zacks Rank #1 (Strong Buy), and double digit expected EPS
growth.
But for more on why EDU might be a solid pick, you should definitely check out our recent ‘bull of the day’ on the company which details many other reasons
why this is a top stock. Either way though, it is probably best to stay far away from CPLA, as sluggish results and a poor outlook could doom this stock in
the near term.
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NEW ORIENTAL ED (EDU): Free Stock Analysis Report
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
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