Bridgepoint Education (:BPII) Has put together a number of positive earnings surprises and that stock has risen to a Zacks Rank #4 (Sell). It is the Bull of the Day.
Super Run Up
The stock has run up quite dramatically over the past six weeks. The stock is up more than 20% since the start of May, but at the same time, earnings estimates have been moving in the opposite direction.
Bridgepoint Education provides postsecondary education services. Its academic institutions, Ashford University and University of the Rockies offer associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences. The company was formerly known as TeleUniversity, Inc. and changed its name to Bridgepoint Education, Inc. in February 2004. Bridgepoint Education, Inc. was founded in 1999 and is headquartered in San Diego, California.
Not So Good Earnings History
Looking to the earnings history, I see a stock that has missed the number in two of the last three reports and posted an earnings meet in the other instance. The September 2012 quarter came in 17% below expectations and the following quarter was a negative earnings surprise of 3.3%.
Estimates Trend Lower
Estimates for BPI have slid over the past several months. The Zacks Consensus Estimate for 2013 stood at $2.21 in August of 2012. Over the next several months estimates moved from that level to $2.13 in October, to $1.55 In December, to $1.28 in April down to the $0.98 level that analysts are currently calling for. That is a dramatic decrease.
The 2014 Estimates have also been dropping. The Zacks Consensus Estimate was $1.42 in February and has ripped lower to $1.01 in April and down to $0.61, where it sits today.
The glaring indication of troubling times to come is apparent when you see that estimates for 2014 are lower than the current year.
The valuation picture for BPI is one that looks good at first glance, with a trailing PE of 6x and forward multiple of 13x, both measures are well below the industry average. The price to book of 1.3x is also less than half the 3.0x industry average. But the devil is in the details here, with revenue declining 18.5% in 2013 and expected to be 8.6% lower again in 2014. EPS is also declining at a 57% rate for 2013 and 38% for 2014 compared to an industry average increase of 5% in 2013 and 13% in 2014. So the valuation is moving lower as the company slips behind the industry rate of growth of earnings.
The chart for BPI looks pretty good right now, but the 20%+ move from the start of May to the $13 level the stock is currently at is simply not supported by the fundamentals. With estimates moving lower, investors will see that this is a stock they do not want to hold in their portfolio's until the earnings turnaround.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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