DeVry Education Group Inc. (DV) is set to report the second-quarter fiscal 2014 results on Feb 4, after the market closes. Last quarter, it posted a negative earnings surprise of 4.35%. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
The company has been struggling with its top line as the relatively strong growth in the healthcare and international businesses (growth institutions) is being offset by revenue declines at the struggling flagship DeVry University which accounts for half of the company’s revenues. DeVry University has been witnessing persistent enrollment declines as a result of overall economic downturn and lack of student confidence which has reduced demand. Many other schools like Apollo Education Group, Inc. (APOL) and ITT Educational Services have also been hurt by the weak student demand.
Enrollment trends at DeVry University are not expected to improve much in fiscal 2014. In the second quarter, revenues are expected to grow at all institutions, except DeVry University.
Regarding costs, total operating costs are also expected to increase slightly year over year in the second quarter. Costs at growth institutions (like Chamberlain, Ross, Becker and DeVry Brasil) are expected to increase sequentially. However, at transition institutions (like DeVry University and Carrington), costs are expected to decline both year over year and sequentially.
Our proven model does not conclusively show that DeVry is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP is -1.33%. That is because the Most Accurate estimate stands at 74 cents while the Zacks Consensus Estimate is higher at 75 cents. That is a difference of -1.33%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies that you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
K12, Inc. (LRN), with Earnings ESP of +12.1% and a Zacks Rank #3 (Hold).
Universal Technical Institute, Inc. (UTI), with Earnings ESP of +100.0% and a Zacks Rank #3.