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Analyst Blog

On Mar 10, 2014, we issued an updated research report on DeVry Education Group Inc. (DV - Analyst Report).

DeVry turned around from a weak first quarter by beating the Zacks Consensus Estimate for both revenues and earnings in the second quarter of fiscal 2014. The second quarter results were announced on Feb 4. However, both revenues and earnings declined year over year as strong growth in the healthcare and international businesses was offset by yet another revenue decline at the struggling flagship DeVry University due to enrollment shortfall.

DeVry has been witnessing persistent enrollment declines, mainly at DeVry University, as a result of overall economic downturn and lack of student confidence which has reduced demand.

However, though enrollments have been declining, the rate of decline is narrowing due to management’s turnaround plan that includes new scholarship programs and other operational initiatives (like a tuition freeze for 2013–2014 and strategic use of scholarships). Further, management expects starts to improve at DeVry University in March.

DeVry’s diversified portfolio of programs, regular strategic acquisitions and a debt-free balance sheet give it a competitive advantage. The company is also witnessing continued strength in its health care and international businesses. Moreover, the performance improvement plan to align costs, regain enrollment growth and make growth investments is yielding positive results.

However, the company needs to show a sustained enrollment growth at DeVry University, accounting for 50% of revenues; not expected at least in 2014. The continued challenged regulatory environment also remains a persistent overhang.

Key Picks from the Sector

DeVry carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the education sector include Strayer Education Inc. (STRA - Analyst Report), Apollo Education Group, Inc. (APOL - Analyst Report) and TAL Education Group (XRS - Snapshot Report). All the three stocks enjoy a Zacks Rank #1 (Strong Buy).

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