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Adtalem to Transfer DeVry University to Cogswell Education


Adtalem Global Education ATGE entered into a stock purchase agreement to transfer ownership of DeVry University and its Keller Graduate School of Management to Cogswell Education LLC, a California-based higher education company. Adtalem will sell all of the outstanding equity interests of DeVry University, Inc. and DeVry New York Inc. for de minimis consideration.

Per the agreement, no consideration will be paid to Adtalem at the closing of the deal but includes an “earn-out” for Adtalem, meaning Adtalem will receive additional payments (up to $20 million) based on the future performance of DeVry University, over a 10-year period.

Adtalem will also provide DeVry with a minimum working capital balance of $7.5 million, subject to increase under certain conditions to up to $20.1 million, based on student census reductions. The deal is expected to complete in 2018.

Notably, Adtalem has been witnessing a persistent decline in enrollments at its flagship institution, DeVry University, which accounts for a major portion of its revenues. DeVry University student starts have been declining for several years now and are expected to remain a challenge in the near term, as students are still reluctant to incur debt for higher degree.

Nevertheless, the company has undertaken several student-focused initiatives at DeVry University to return to growth and transform this business. However, these efforts did not bear fruit. DeVry University generated revenues of $95.8 million in the last quarter, down 20.8% due to continued decline in enrollment.

Adtalem considers Cogswell Education as the right fit to leverage DeVry’s mission and commitment to students, ensuring high-quality programs that help them achieve their career goals.

With the transfer of DeVry University, Adtalem will now be able to pay better attention on its remaining institutions across the medical and healthcare, technology and business, and professional education segments.

Price Performance

Adtalem’s shares have gained 29.9% year to date, underperforming the 37.6% rally of its industry. Further, the current-quarter and full-year earnings estimates have moved down 5% and 0.4%, respectively, over a month, reflecting analysts’ concerns over the stock’s prospects.

Zacks Rank & Stocks to Consider

Adtalem presently carries a Zacks Rank #3 (Hold)

A few better-ranked stocks in the industry are TAL Education Group TAL, Bright Horizons Family Solutions Inc. BFAM and Grand Canyon Education, Inc. LOPE.

All three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fiscal 2018 earnings for TAL Education are expected to increase 68.2%.

Bright Horizons is expected to witness 22.4% growth in 2017 earnings.

Grand Canyon is likely to see a 21.9% rise in 2017 earnings.

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