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Zacks Industry Outlook Highlights: GP Strategies, Adtalem Global Education, American Public Education, Stride and Lincoln Educational Services Corp

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Zacks Equity Research
·10 min read
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For Immediate Release

Chicago, IL – March 19, 2021 – Today, Zacks Equity Research discusses Schools, including GP Strategies Corporation GPX, Adtalem Global Education Inc. ATGE, American Public Education, Inc. APEI, Stride, Inc. LRN and Lincoln Educational Services Corporation LINC.

Link: https://www.zacks.com/commentary/1281927/5-school-stocks-to-navigate-industry-challenges

Although companies in the Zacks Schools industry have been experiencing improved enrollment growth due to sustained vaccination drive and a solid stimulus package, increase in employee compensation costs, advertising and marketing expenses, along with costs pertaining to online education are pressing concerns.

Nonetheless, for-profits education companies are forging corporate and community college partnerships to educate their workforce. Prudent cost management, persistent focus on driving profitability and strategic initiatives are expected to lend support to some prominent players in this industry like GP StrategiesAdtalem Global EducationAmerican Public EducationStride and Lincoln Educational Services Corp.

Industry Description

The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in areas of finance, accounting, analytics, marketing, healthcare, business and technology. The industry players also offer child care services and career-oriented, post-secondary courses.

Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conduct workshops and teacher training programs.

3 Trends Shaping the Future of Schools Industry

Rising Demand for Online Education: Amid the novel coronavirus outbreak, for-profit education stocks have been reaping benefits from the rise in virtual delivery of education. As the world struggles to contain the virus spread, many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned, with the help of various online education platforms. Also, classroom type education providing companies are cashing in on the unprecedented surge in the demand for online education these days.

Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: In order to boost profitability, school companies are resorting to aggressive cost cutting through significant layoffs, campus closings and consolidations. Developments like switching to online education programs, increasing use of technology in education, more investments in education, regular introduction of programs, and specializations should boost student outcomes along with tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students.

Many for-profit education companies are investing in non-degree programs and designing programs that are specifically aimed at meeting the educational needs of working adults in targeted professions.

Stringent Regulations & COVID-19 Impact: Growth in the industry may get impeded by legal and regulatory issues faced by post-secondary schools in the United States, increased competition, higher expenses for various programs and shortage of skilled labor. Also, higher unemployment levels may prove detrimental to for-profit education companies.

The COVID-19 pandemic may cause a disruption in educational services. General economic slowdown may reduce the number of jobs available to graduates and lower salaries being offered in connection with available employment, which will affect the companies’ placements and persistence.

Additionally, the slowdown may compel students to repay their loans, which could increase institutions’ student loan cohort default rates, ultimately increasing bad debt expense. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, in turn affecting the companies’ operations and financial condition.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Schools industry is an 19-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #202, which places it at the bottom 20% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since December 2020, the industry’s earnings estimates for 2021 have been revised 17.2% downward.

Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.

Industry Lags Sector & S&P 500

The Zacks Schools industry has underperformed the broader Zacks Consumer Discretionary sector and Zacks S&P 500 composite over the past year.

The stocks in this industry have collectively gained 43.6% compared with the broader sector’s growth of 90.4%. Meanwhile, the S&P 500 has risen 66.4% in the said period.

Industry’s Current Valuation 

 On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 47.99X versus the S&P 500’s 22.53X and the sector’s 35.47X.

Over the past five years, the industry has traded as high as 50.77X, as low as 24.82X and at a median of 31.38X.

5 School Stocks to Keep a Close Eye On

GP Strategies Corp.: Based in Columbia, MD, this company has an operating subsidiary, namely General Physics Corporation. General Physics is a global provider of training and e-Learning solutions, management consulting, as well as engineering services, thereby improving the effectiveness of organizations by customizing solutions that enhance an organization's people, processes or technology. The company has been focusing on restructuring and transition activities to improve operational efficiency, reduce costs, as well as better position itself to drive future revenue growth.

It has also been focusing on building a strong balance sheet amid this pandemic. Although the company’s revenues were impacted by COVID-related woes, fourth-quarter 2020 marked the third consecutive quarter of adjusted EBITDA growth on a strong balance sheet and clear strategy. The robust training outsourcing market and Automotive Performance Solutions Service offerings are encouraging.

Importantly, GP Strategies has seen a 21.5% upward estimate revision for 2021 earnings over the past seven days. The stock has climbed 95.6% in the past six months, outperforming the industry’s 0.3% gain. This Zacks Rank #1 (Strong Buy) company’s earnings for 2021 and 2022 are expected to grow 31.5% and 22.7%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adtalem Global Education Inc.: This Chicago, IL-based company provides educational services worldwide. Its focus on innovation in product offerings, driving growth in Becker and providing a broad range of options for Association of Certified Anti-Money Laundering Specialists or ACAMS offerings bode well. Adtalem has multiple courses to drive revenues that comprise tapping strong demand for Medical and Healthcare professionals, capitalizing on solid demand in the mortgage market and OnCourse Learning.

Importantly, Adtalem has seen a 2.1% upward estimate revision for 2021 earnings over the past 60 days. The stock has climbed 63.9% in the past six months. This Zacks Rank #2 (Buy) company’s earnings for fiscal 2021 and 2022 are expected to grow 30.7% and 13.9%, respectively.

American Public Education, Inc.: Headquartered in Charles Town, WV, this company is an online provider of higher education, primarily focused on serving military and public service communities. The company has been gaining from increased demand for online courses and nursing programs. Also, initiatives like affordable tuition, online programs, strategic efforts aimed at improving student success and strong digital marketing campaigns are likely to benefit American Public going forward.

Its earnings for 2021 and 2022 are expected to grow 29.2% and 26%, respectively. This Zacks Rank #3 (Hold) company has gained 32.1% over the past six months. American Public has seen an upward estimate revision of 18.6% for 2021 earnings over the past seven days, depicting analysts’ optimism over the stock’s earnings prospects.

Stride, Inc. (formerly known as K12 Inc.): Headquartered in Herndon, VA, this technology-based education company has been gaining from higher enrollment and cost-saving efforts. Persistent demand for online learning options has been benefiting Stride’s top line in recent times. Moreover, investments focused on improving user experience, enhancing teacher tools and strengthening student engagement bode well.

In addition to higher enrollments and stronger-than-expected student retention (partly attributable to revenues it recognized in relation to the services provided in fiscal 2020), the Galvanize acquisition is expected to have contributed to revenues as well.

Importantly, although the stock has gained 0.7% over the past six months, Stride has seen an 18.2% upward earnings estimate revision for fiscal 2021 over the past 60 days, depicting analysts’ optimism. This Zacks Rank #3 company’s earnings for fiscal 2021 are expected to grow 160%.

Lincoln Educational Services Corp.: Based in West Orange, NJ, this company provides career-oriented post-secondary education services to high school graduates and working adults in the United States. Improvement in the employment rate, improved operating performance at its 22 campuses, consolidating facilities, a new welding program, a reinvigorated corporate partnership and changes in the admissions team have been a boon for Lincoln.

Importantly, it has seen a 6.3% upward earnings estimate revision for 2021 over the past 30 days. The stock has climbed 3.6% in the past six months. This Zacks Rank #3 company’s earnings for 2021 are expected to grow 41.7%.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021? Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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