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Here’s Why Investors Should Steer Clear of Adtalem (ATGE)


In order to maximize portfolio returns, one must get rid of stocks that can be damaging to the portfolio. One such stock could be Adtalem Global Education Inc. ATGE, which has been witnessing weak enrollments at its institutions. Though the company’s shares have gained 32.7% in a year against the industry’s decline of 24.8%, the stock’s past-three-month performance shows a decline of 10.3%.

Let’s delve deeper and try to identify the factors affecting this Zacks Rank #5 (Strong Sell) company’s potential.

Lower Student Enrollments Denting Revenues

Adtalem is facing sluggish demand for academic programs, which is marring its prospects. The major reason for the decline could be reluctancy among students to enroll in academic programs and take loans to fund them. Instead, students prefer to shift to jobs due to the improvement in employment situation.

Moreover, the company is subject to regulatory risks related to federal student financial aid programs, known as Title IV program. If the company fails to comply with the prescribed rules of the program, its institutions may lose eligibility to participate in Title IV funds.

Estimates Trending Downward

Investors’ apprehensions about the company increased after it missed the Zacks Consensus for earnings and revenues in fourth-quarter fiscal 2018. Earnings missed the consensus mark after beating the estimate in the trailing two quarters. Meanwhile, revenues missed estimates for six straight quarters. Further, the company expects revenues for fiscal 2019 to grow a meagre 1% year over year, primarily on the back of solid contribution from the Medical and Healthcare segment.

Owing to analysts’ skepticism about the company’s potential, estimates have been slashed. In the past 60 days, the Zacks Consensus Estimate for fiscal 2019 and 2020 earnings have moved down by 10.9% and 12% to $2.77 and $3.24, respectively. Moreover, the consensus mark for first-quarter fiscal 2019 declined by 29.3% to 41 cents.

Stocks to Consider

Some better-ranked stocks in the industry are Bridgepoint Education, Inc. BPI, Cambium Learning Group, Inc. ABCD and Laureate Education, Inc. LAUR each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bridgepoint Education has an expected earnings growth rate of 31.25% for the next quarter.

Cambium Learning Group has an expected earnings growth rate of 700% for the next quarter.

Laureate Education has an expected earnings growth rate of 274.17% for the current year.

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