On Jul 4, we upgraded DeVry Education Group Inc. (DV) to a Zacks Rank #1 (Strong Buy) ahead of its fourth-quarter fiscal 2014 results later this month.
What is Driving the Stock?
For two quarters in a row, DeVry has delivered impressive results. The education provider beat the Zacks Consensus Estimate for both revenues and earnings in the second as well as the third quarter of fiscal 2014, driven by better-than-expected revenues and aggressive expense control. Accordingly, the share price has increased more than 26% year-to-date.
DeVry’s revenues and earnings are being driven largely by its healthcare and international businesses. These institutions have shown significant improvement in revenues and profitability in all the quarters of fiscal 2013. Especially the healthcare institutions, Chamberlain and Ross, are gaining from the increased demand for nurses and physicians across the U.S.
Strong performance of these growth institutions are making up for the disappointing results at the flagship DeVry University. DeVry University has been witnessing enrollment declines in the past few quarters due to the overall economic downturn and lack of student confidence, which have lowered demand. Though enrollments continue to decline, the sequential improvement is encouraging.
For the fourth quarter of fiscal 2014, the company expects revenue growth from all the institutions, except DeVry University. In fact, management expects revenue growth to be modestly positive in the quarter due to strength in non-DeVry University businesses. It should be noted that the company has not seen a positive year-over-year increase in revenues for more than six quarters now.
Moreover, the company expects operating costs to decline year over year, but increase sequentially due to investment in the growth institutions.
Overall, DeVry is a high quality company. Its diversified portfolio of programs, regular strategic acquisitions and a debt-free balance sheet give it a competitive advantage. Its performance improvement plan to align costs, regain enrollment growth and make growth investments are also yielding results.
Other Stocks to Consider
Other stocks in the education industry that are worth considering include TAL Education Group (XRS), Strayer Education, Inc. (STRA) and Lincoln Educational Services Corporation (LINC). While TAL Education and Lincoln Educational Services sport the same rank as DeVry, Strayer has a Zacks Rank #2 (Buy).