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3 For-Profit Education Stocks to Buy Post-Q1 Earnings


For-profit education companies lacked sheen in the last few years and the March quarter was no exception. The dismal scene can be traced back to lower student demand, regulatory restrictions, serious threats to federal funding and a competitive environment. So much so that prospective students are still reluctant to take loans for a higher degree.

Prominent players in the sector like DeVry Education Group Inc. DV, Universal Technical Institute, Inc. UTI and American Public Education, Inc. APEI are struggling with fading enrollments trends. Rising cost of necessities like health care, housing and education is crowding out discretionary spending for consumers.

Moreover, the U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending barely increased. The slow economic recovery coupled with gradual strengthening of the labor markets make it difficult for for-profit companies to attract students preferring education to jobs.

Nevertheless, the big reason for choosing to invest in for-profit education stocks now is Betsy DeVos, President Trump’s Secretary of Education. She is considered the most business-friendly person to hold the position since the Department of Education was created by Jimmy Carter in 1979.

In fact, the U.S. presidential election had a positive impact on the school industry as shares of for-profit education companies rallied post-Trump’s victory. Trump has assured to support schools, confirming federal funding for online companies. He has even committed to ease regulations imposed on the industry by the Obama administration.

With changing times, for-profit education companies are coming up with ad campaigns, investing in digital capabilities and stepping up social media efforts to increase their brand value as well as boost enrollment growth. The for-profits are also forging corporate and community college partnerships to educate their workforce. Additionally, companies are improving their technology and infrastructure, increasing investments to improve the academic quality and retain students, buying complementary businesses and regularly introducing new programs and specializations to boost student outcomes.

In order to improve profits, companies like DeVry and Universal Technical Institute have resorted to aggressive cost-cutting measures through significant layoffs and campus closings.

Schools with Promising Performances

A few for-profit schools such as Capella Education Company CPLA are thriving, beating estimates on both counts in the first quarter of 2017. Although the company’s earnings decreased year over year, revenues improved, driven by positive enrollment levels recorded at Capella University.

Strayer Education’s STRA first quarter earnings meet analysts’ expectations. The company’s revenues increased 3.3%, primarily buoyed by 6% higher enrollment.

3 Stocks to Bet On

Keeping the positive momentum in mind, we may zero in on some for-profit education stocks that have gained in the current mixed scenario and have the potential to further grow. With the help of the Zacks Stock Screener, we have handpicked three stocks in the School industry based on a good Zacks Rank and other relevant metrics.

Bridgepoint Education, Inc. BPI, a provider of postsecondary education services, returned 83.6% in the last one year, faring a lot better than the Zacks classified School industry’s gain of 66.2% as well as the broader Consumer Discretionary sector’s 18.5% growth.

The stock sports a Zacks Rank #1 (Strong Buy) and has a 3–5 year EPS growth rate of 10%.

In the last 30 days, the Zacks Consensus Estimate for current year’s earnings moved up 100%. Bridgepoint has a projected EPS growth rate of 263.9% in 2017, 22x higher than the industry average of 12%.

Earlier this month, the company came up with better-than-expected first-quarter results. The company posted earnings of 23 cents a year, crushing expectations of breakeven. The reported earnings swung from a loss of 2 cents a year ago.

Grand Canyon Education, Inc. LOPE Grand Canyon is a provider of online postsecondary education services and also offers programs at its traditional campus in Phoenix, Arizona and onsite at the facilities of employers.

Recently, it reported upbeat first quarter results wherein its earnings and revenues surpassed the Zacks Consensus Estimate by 10.9% and 1.5%, respectively. This company’s net revenues and enrollment increased 9.4% and 11% year over year. Quarterly EPS improved 21.7%, courtesy of higher revenue and operating income (up 11.6%).

Shares of Grand Canyon returned 87.5% in the last year, outperforming the Zacks classified School industry.

Grand Canyon has a solid 3–5 year EPS growth rate of 10.78% and a VGM score of ‘A.’ This earnings momentum is likely to continue in the near term, as reflected by the company’s projected EPS growth of 15.1% for the current year (higher than the industry average of 12%).

In the last 30 days, the Zacks Consensus Estimate for the company increased 5.2% for 2017 and 3.1% for 2018. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #2 for the stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bright Horizons Family Solutions Inc. BFAM is engaged in providing employer-sponsored child care, early education and work/life solutions.

Shares of Bright Horizons returned more than 23% in the last one year, outperforming the Zacks Consumer Discretionary sector’s growth of 18.5%. The stock also holds a Zacks Rank #2 and boasts a solid VGM score of ‘A.’

Recently, it posted first-quarter 2017 results wherein its earnings surpassed expectations by 9.4%. However, its revenues fell short of estimates.

Reported earnings and revenues grew 20.8% and 10%, respectively in the quarter, banking on contributions from new and ramping full-service child care centers, average price increases of 3-4%, and expanded sales of back-up dependent care and educational advisory services.

In the last 30 days, the Zacks Consensus Estimate for the company increased 3 cents for 2017 and 5 cents for 2018. For 2017, the company’s EPS is likely to grow 20.4% and 13.3% for 2018. Its 3–5 year EPS growth rate is pegged at an impressive 19.67%.

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