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Will Adtalem’s (ATGE) Transformation Steps Drive Growth?

Zacks

On Sep 11, we issued an updated research report on Adtalem Global Education Inc. ATGE, a leading global education provider.

Weak Revenues Continue to Hit Hard

Adtalem’s shares have gained more than 7% so far this year, underperforming the 46.7% rally of its industry. Estimates for the current quarter and year have decreased 5.9% and 0.3%, respectively, over the last 30 days. Presently, the company’s sluggish enrollment trends and weak revenues are weighing on its performance.




The company has been witnessing a persistent decline in enrollments at DeVry University, Carrington College and Medical and Veterinary schools. Particularly, DeVry University starts have been declining for several years now and are expected to remain a challenge over the near term, as prospective students are still reluctant to incur debts for a higher degree. The competitive landscape also remains intense.

Initiatives to Combat Declining Enrollment Trend

Adtalem is working on strengthening its value proposition, elevating its growth profile and improving operating leverage even further. For that, the company has laid out various cost-saving initiatives that led to a 19.8% year-over-year decrease in its total operating cost and expenses in the fiscal fourth quarter. Adtalem’s overhead spending decreased almost 10% year over year, excluding special items, in the last-reported quarter. Through its continued focus on improving operating effectiveness, the company slashed costs at DeVry University, Carrington, Chamberlain and its Medical and Veterinary schools.

However, the cost-saving initiatives alone are not enough. The company also needs to undertake several student-focused initiatives to return to growth and transform this business.

For that, Adtalem laid out plans with the aim of transforming into a leaner, more-focused enterprise with balanced investment initiatives to deliver direct returns to its shareholders. The company is making progress with the launch of new programs, which are more directly aimed at meeting student preference and employer needs. These programs are shorter and more stackable, spanning the technology, health care and business fields. They have been designed to provide students with enhanced flexibility and greater affordability to support their pursuit of in-demand skill sets. Such new programs can facilitate enrollment and drive growth.

Meanwhile, as the company extends its tie-ups with organizations, Adtalem will gradually have the flexibility to further reduce its exposure to Title IV funding.

Investors should note that, although the company reported lower revenues in fiscal 2017 (down 1.8%), its bottom line grew 15.8% year over year.

Zacks Rank & Key Picks

Adtalem currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors can consider some better-ranked stocks in the same like Bright Horizons Family Solutions Inc. BFAM, GP Strategies Corporation GPX and Grand Canyon Education, Inc. LOPE. Each of these carries a Zacks Rank #2 (Buy).

Bright Horizons, GP Strategies and Grand Canyon are expected to report 22.3%, 5.8% and 20.4% earnings growth, respectively, this year.

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