A month has gone by since the last earnings report for Adtalem Global Education (ATGE). Shares have added about 14.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Adtalem due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Adtalem's (ATGE) Q1 Earnings Miss Estimates, Down Y/Y
Adtalem Global Education Inc. reported first-quarter fiscal 2020 results, with the top and the bottom line lagging the Zacks Consensus Estimate.
In the quarter under review, the company reported adjusted earnings of 34 cents per share, which missed the consensus mark of 46 cents per share by 26.1%. Earnings also declined 22.7% from a year ago quarter’s reported figure. Higher investments in marketing and student recruitment to boost enrollments and revenues have negatively impacted operating income as well as profits.
Owing to the recently-announced agreement to divest Adtalem Educacional do Brasil, which represents the entire Business and Law segment, the segment is reported under discontinued operations.
Revenues & Operating Discussion
Revenues of $254.6 million also lagged the consensus mark of $302.5 million by 15.8%. However, the figure increased 7.5% year over year. During the fiscal first quarter, enrollment of new students increased 2.3% and total students grew 0.4% year over year.
Adjusted operating income totaled $27.5 million compared with $36.2 million in the prior-year quarter.
Medical and Healthcare: Revenues in the segment rose 2.7% from the year-ago quarter’s figure to $207.5 million. Chamberlain University’s revenues increased 2.5% year over year.
In the fiscal first quarter, new and total student enrollment increased 2.9% and 1.4% year over year, respectively, in Chamberlain. The upside was mainly driven by growth in Bachelor of Science in Nursing and graduate programs including Master of Social Work.
Medical and Veterinary schools’ revenues grew 2.9% year over year. New and total enrollment in the September session dipped 1.9% and 4.7% year over year, respectively.
Adjusted operating income during the quarter was $28.6 million, down 29.6% from the prior-year quarter’s level. The decline was caused by elevated marketing-related expenses and higher corporate allocation expenses.
Financial Services: Revenues in the segment totaled $47.1 million, up 32.2% year over year. Revenues at Becker increased 0.3% year on year and that of Association of Anti-Money Laundering Specialists rallied 37.4% from the year-ago quarter’s tally. However, adjusted operating income declined 13.5% from the prior-year quarter’s tally to $4.1 million.
Liquidity & Cash Flow
As of Sep 30, 2019, Adtalem had cash and cash equivalents of $121.1 million compared with $204.2 million on Jun 30, 2019. In the fiscal first quarter, cash provided by operating activities totaled $47.5 million, down from $78 million in prior-year quarter.
Fiscal 2020 Outlook
Total revenues are projected to increase 5-7% year over year. Moreover, adjusted earnings per share (EPS) are anticipated to rise 7-9% on a year-over-year basis. Capital spending is expected in the range of $45-$50 million. The effective income tax rate for the fiscal is expected in the range of 19-20%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -29.83% due to these changes.
Currently, Adtalem has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Adtalem has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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