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On Sep 3, Zacks Investment Research upgraded Capella Education Company (CPLA - Analyst Report) to Outperform following solid second quarter 2013 results released on Jul 23.

Why the Upgrade?

A provider of online post-secondary education services, Capella surpassed the Zacks Consensus Estimate for both revenue and earnings in the second quarter of 2013. Though the company’s earnings of 83 cents declined 2.4% year over year, it surpassed the Zacks Consensus Estimate of 66 cents by 25.8% on the back of better-than-expected enrollment growth in the quarter.

Revenues of $103.7 million beat the Zacks Consensus Estimate of $102.0 million by 1.7% in second quarter 2013. Year over year revenue decline of 2.3% was better than management’s expectation of a 3.0% to 4.0% decline, given better-than-expected enrollment growth.

Total active enrollment decline of 0.9% from the prior-year quarter was significantly lower than management’s guidance of a decline of 2.0% to 3.0% due to improving persistent rates and solid increase in new enrollments.

New enrollments grew 12.7%, far exceeding management’s expectation of sequentially flat results. We believe that Capella’s relationship and brand-driven marketing strategy and initiatives to improve learner success rates have begun to bear fruitful results. Margins also exceeded management expectations in the quarter driven by top line growth and cost savings. Further, continuous innovation and efforts to update courses are boosting enrollments.

Following the solid second-quarter results 2013, the Zacks Consensus Estimate mostly moved upwards. The Zacks Consensus Estimate for 2013 increased 5.9% and that for 2014 went up 4.0% over the last 60 days.

Other Stocks to Consider

Capella has a Zacks Rank #1 (Strong Buy). Other education companies that are performing well include ATA, Inc. , Grand Canyon Education, Inc. (LOPE - Snapshot Report) and TAL Education Group (XRS - Snapshot Report).  All the three companies carry a Zacks Rank #2 (Buy).

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