WF vs. BEN: Which Stock Should Value Investors Buy Now?
It has been about a month since the last earnings report for Capella Education Company CPLA. Shares have added about 15.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is CPLA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Fourth Quarter Results 2017
The company reported adjusted earnings of 86 cents per share in the quarter, which fell shy of the Zacks Consensus Estimate of $1.00. In the year-ago period, earnings were 97 cents per share.
Revenues and Enrollment
Capella’s quarterly revenues of $112 million were in line with the Zacks Consensus Estimate but increased 0.7% year over year despite declining enrollment.
Capella reports under two segments — Post-Secondary and Job-Ready Skills. While the Post-Secondary segment comprises Capella University and Sophia Learning, the Job-Ready Skills segment covers Capella Learning Solutions, Hackbright Academy and DevMountain.
Post-Secondary: The segment reported revenues of $109.8 million, up 0.4% from the year-ago quarter in spite of a decline in enrollment. The upside was mainly attributable to higher revenue-per-learner. However, operating margin of 18% showed a year-over-year decline of 90 basis points (bps).
Capella University’s total active enrollment declined 1% to 37,517 learners, while new enrollment increased 5.7% on a year-over-year basis. Early cohort persistence improved approximately 1% from the prior-year quarter.
Job-Ready Skills: The segment reported revenues of $2.2 million in the fourth quarter, up 15.8% year over year. That said, the segment reported an operating loss of $17.7 million, compared with $2.4 million loss in the prior-year quarter. Investors should note that though the Hackbright and DevMountain acquisitions have positively contributed to the company’s top line, the additions have not achieved performance expectations, resulting in fourth-quarter 2017 goodwill and intangible asset impairment charges of $15 million.
Capella’s adjusted operating income from continuing operations was $18.3 million. On a GAAP basis, the company incurred operating loss of $1.6 million against operating income of $18.3 million for the same period in 2016.
Capella, in 2017, generated $63.7 million in operating cash flow from continuing operations, compared with $86.1 million in the prior-year period.
The company ended 2017 with cash and marketable securities of $181.4 million, compared with $162.3 million at 2016-end.
During the fourth quarter, Capella declared a quarterly cash dividend of 43 cents per outstanding share of common stock. The dividend was paid on Jan 18, 2018.
Also, in 2017, Capella repurchased approximately 51,000 shares for a total consideration of $3.5 million. The remaining authorization was $27 million, as of the end of the quarter.
The company remains focused on continued revenue growth. To this end, Capella aims to achieve annual new enrollment growth, along with stable or improving early cohort persistence and continued revenue growth in the Job-Ready Skills segment. Moreover, the company expects the Job-Ready Skills segment to be less dilutive in 2018.
The tax rate for recurring operations for Capella is currently expected to be about 24% to 25% related to the United States tax reform legislation passed at the end of 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter In the past month.
Capella Education Company Price and Consensus
Capella Education Company Price and Consensus | Capella Education Company Quote
At this time, CPLA has an average Growth Score of C. Its Momentum is doing a bit better with a B. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock and the magnitude of this revision looks promising. It comes with little surprise CPLA has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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