Adtalem Up 14% in Past 3 Months: Can Enrollment Aid Further?
Adtalem Global Education Inc.’s ATGE shares have rallied nearly 14% in the past three months on the back of prudent investment initiatives and the introduction of short-term programs. Also, cost-saving initiatives and growing demand in health care and international institutions are adding to the bliss.
The company’s impressive earnings in third-quarter fiscal 2020 are a testimony to the fact. During the quarter, its earnings not only topped the Zacks Consensus Estimate by 20.9% but also grew 26.6% on a year-over-year basis. The upside was backed by solid new student enrollments, employer partnerships and prudent cost management across the business.
However, near-term financial impact of the COVID-19 pandemic, restructuring charges and increased marketing-related expenses have been putting pressure on the bottom line. Estimates for fiscal 2020 have been trending downward over the past 30 days, reflecting analysts’ concern surrounding the company’s earnings growth potential.
Let’s take a look at the factors substantiating its Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investment in Collaboration & Innovation
Adtalem laid out various investment plans including partnerships with corporations, hospitals, government agencies and professional organizations. The collaborative investments will be made with the intend to design education programs aimed at teaching new skills to employees; introduction of short-term programs to meet students’ preference and employers’ needs; as well as expansion in Asia, U.K., Latin America and the greater European market.
The company has started developing the hybrid BSN degree via utilizing online instruction and in-person intensive learning. This step will be crucial for addressing nursing shortage in the current market scenario.
Such initiatives are driving its enrollment, and thereby revenues. In fiscal third-quarter 2020, enrollment of new and total students grew 11.3% and 4.6% year over year, respectively. The upside was backed by double-digit year-over-year growth in the Registered Nurse to BSN program.
Healthcare Industry, a Boon for Adtalem
Adtalem’s health care and international institutions have recorded significant improvement over the past few years. In particular, Chamberlain university remains well positioned to gain from the growing demand for nurses and increasing roles played by them in the healthcare industry. Within Chamberlain, new and total student enrollment was solid in the fiscal third quarter, improving 11.2% and 4.6% in the January session, and 12.7% and 5.1% in the March session, respectively, from a year ago.
The company is optimistic about the demand trends in the medical and healthcare segment from both students and employees. To drive the segment’s future performance, it modified the pricing model in certain markets served, and introduced evening and weekend classes to attract more students.
Cost-Saving Initiatives
Adtalem has undertaken cost-saving initiatives like workforce reduction and curbing discretionary spending. The company is following a strict cost-control routine, with special emphasis on controlling and escalating costs at some of the institutions. Also, tie-ups and collaboration with different organizations are allowing Adtalem to reduce exposure to Title IV funding.
Coronavirus & Industry Regulations Remain Potent Threats
In the fiscal third quarter, the company’s top line was impacted by the coronavirus outbreak. Its Medical and Veterinary schools’ revenues fell 3.3% year over year, mostly due to COVID-19-led reduced clinical weeks in March. As the near-term financial impact of the COVID-19 pandemic is uncertain, Adtalem has withdrawn its previously issued guidance for fiscal 2020.
In order to remain eligible to participate in Title IV programs, Adtalem has to follow certain extensive rules/regulations like maximum student loan default rates and debt-to-earnings ratios of its graduates; limitations on the proportion of revenues that can be derived from federal student aid programs; elimination of incentive compensation to admissions advisors; standards of financial responsibility; as well as administrative capabilities. If the company fails to comply with these rules, its institutions may lose the eligibility to participate in Title IV funds.
Increased Costs Might Hurt Near-Term Results
Despite undertaking various initiatives and actions, Adtalem’s bottom line has been under pressure due to certain restructuring charges related to the impairment of land, buildings and equipment. Also, increased marketing-related expenses are adding to the woes. Adtalem — which shares space with Strategic Education, Inc. STRA, Career Education Corporation PRDO and New Oriental Education & Technology Group Inc. EDU in the same industry — recorded a 3.5% decline in adjusted operating profits in the first nine months of fiscal 2020.
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