I think LRN will beat estimates easily today, mainly because they have set the bar so low.
The estimate is for $94M in revenue and 0.12 EPS. The revenue number should be about right but the EPS is too low. Here is why:
Gross revenues were 44% last quarter and the management said they would decline somewhat as the year went on. Lets say they drop to 43% this quarter. That gives a gross profit of about $40.5M
Operating costs were $27.3M last quarter and were expected to increase this year. I estimate they will jump to $30M this quarter. That leaves operating profit at $10.5M
Interest expense and taxes will likely stay the same or about $4.5M. That leaves $6M in net profit or about 0.21 a share, much higher than the estimate.
The only way they will not make this number is if their operating costs rise significantly. They are scaling the business nicely and are streamlining their cost structure. Revenues are fairly predictable and current political trends are in their favor. We might see a nice jump at the open tomorrow.
The conference call was also quite good and I think they are underestimating even their revised guidance for Q4. Operating earnings are up 65% so far this year on a 21% increase in revenue. They also have not seen what might be significant revenue potential from their new language offering and their international business. With only about half of the states now allowing charter schools (LRN adds about 2-4 a year) they have much more room to grow. Michigan started this year according to the call. I think they will still have perhaps $5 million or more in operating earnings in Q4 instead of the breakeven or small loss they are predicting.
Further, over 70% of the shares are owned by institutions and big insiders hold another 25%. That means less than 5% of this stock floats. In Q4 Gilder, Gagnon Howe bought $33M worth of stock in a brand new position. I expect that LRN will be a billion company (34 a share) rather soon. Everything is in place for success.
The time to sell might be when that Credit Suisse analyst (she was on the call) upgrades them. LOL