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Analyst Blog

On Jun 17, we issued an updated research report on DeVry Education Group Inc. (DV - Analyst Report).

DeVry beat the Zacks Consensus Estimate for both revenues and earnings in the third quarter of fiscal 2014 — for the second quarter in a row — driven by better-than-expected revenues and aggressive expense control.

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.

Overall, DeVry is a high quality company. Its diversified portfolio of programs, regular strategic acquisitions and a debt-free balance sheet give it a competitive advantage. Its performance improvement plan to align costs, regain enrollment growth and make growth investments is also yielding positive results.

DeVry’s revenues and earnings are being driven largely by its healthcare and international businesses. These institutions have shown significant improvement in revenues and profitability in all the quarters of fiscal 2013. Especially the healthcare institutions, Chamberlain and Ross, are gaining from increased demand for nurses and physicians across the U.S.

However, the core business — the DeVry University — accounting for half of the company’s revenues, has been recording enrollment declines and low profits. Enrollments have been going down due to weak macroeconomic environment and subsequent decline in student demand (due to the hesitancy over taking a loan). DeVry University starts have been declining for several years and are expected to remain a challenge in the near term.

In fact, enrollments have been sluggish across the entire higher education system in the United States as prospective students are apprehensive of pursuing a higher degree as well as the job market. The competitive landscape is also intense. In order to boost enrollment growth, the company is offering scholarships and other operational initiatives. However, such efforts put pressure on revenue per student and thereby, profitability.

The Business, Technology and Management segment which includes operations of the DeVry University needs to show sustained enrollment growth and improved profitability, not expected at least till fiscal 2015.

Other Stocks to Consider

DeVry has a Zacks Rank #2 (Buy). Other stocks in the education industry that are worth considering include Grand Canyon Education, Inc. (LOPE - Snapshot Report), Strayer Education, Inc. (STRA - Analyst Report) and Lincoln Educational Services Corporation (LINC - Snapshot Report). While Lincoln Educational sports a Zacks Rank #1 (Strong Buy), Grand Canyon and Strayer have the same rank as DeVry.

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