Adtalem (ATGE) Banks on Cost-Cutting Plans, New Courses
Adtalem GlobalEducation Inc. ATGE, formerly known as DeVry Education Group Inc, has been witnessing a persistent decline in enrollments at few of its leading institutions.
However, considerable revenue growth in the health care and international institutions over the last few years coupled with the company’s efficient cost-saving initiatives are expected to drive profits.
Key Growth Drivers
Adtalem navigates declining student enrollment and profits through cost-saving initiatives like workforce reduction and curbing discretionary spending. The company is following a strict cost-control routine, with special emphasis on controlling costs at DeVry University, Chamberlain and Becker. While DeVry University continued to implement transformation strategies, it reduced its costs significantly through disciplined expense management. The company’s total operating costs and expenses declined 2.4% year over year in first-quarter fiscal 2018. In second-quarter fiscal 2018, Adtalem intends to reduce operating expenses by 1-2% year over year on continued cost reduction at DeVry University and Carrington College.
In addition to cost cutting, Adtalem is focused on initiatives to boost efficiency in order to deliver direct returns to shareholders. The company plans to continue with its endeavors to return to organic revenue growth as well as boost operating income and earnings to drive shareholders’ value. Moreover, the company is committed toward working directly with a range of stakeholders including the administration in Congress.
Moreover, to boost the top line, the company is adopting various sales-building initiatives like introduction of courses. In order to enhance student-centric focus and academic excellence across each of its institutions, the company has entered several strategic partnerships with corporations, hospitals, government agencies and professional organizations to design education programs aimed at teaching new skills to employees. By launching programs that meet students’ need and employers’ demand, the company aims to drive enrollment.
Meanwhile, the company’s health care and international institutions have shown significant improvement in revenues and profits over the last few fiscal years. In fact, in the first quarter of fiscal 2018, new student enrollment at Chamberlain increased 0.7% year over year. The company expects mid-single digit growth in new student enrollment at Chamberlain. This university is well positioned to gain from growing demand for nurses and the increasing roles they play in the healthcare industry.
Concerns
Adtalem has been witnessing a persistent decline in enrollments at DeVry University, which accounts for a major portion of the company’s revenues. DeVry University starts have been declining for several years now and are expected to remain a challenge over the near term, as prospective students are still reluctant to incur debt for higher degree. With improving employment situation, more adult students are opting for jobs and the demand for academic programs has declined.
In fact, the company’s net sales declined 1.8% year over year in fiscal 2017 due to weak enrollment trends at DeVry University, Carrington College as well as Medical and Veterinary schools. In fact, revenues are expected to decline 2-3% in fiscal 2018 on a year-over-year basis.
Shares of the company have gained 22.7% year to date, underperforming the industry’s gain of 42.4%.
Further, current quarter and year earnings estimates have moved down 12.6% and 1.4%, respectively, over the past two months, reflecting concerns over the stock’s prospect of the stock.
Zacks Rank & Stocks to Consider
Adtalem currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the industry are American Public Education, Inc. APEI, Bright Horizons Family Solutions Inc. BFAM and Grand Canyon Education, Inc. LOPE.
American Public sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
American Public’s current-year estimates have gone up 2.9% over the last 60 days.
Bright Horizons, a Zacks Rank #2 (Buy) stock, is expected to witness 22.6% growth in earnings for the current year.
Grand Canyon, also a Zacks Rank #2 stock, is expected to see a 21.9% rise in earnings for the current year.
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