We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Stocks in the Thriving Schools Industry for Higher Returns
Read MoreHide Full Article
The popularity of e-books, online learning in the country, increasing demand for healthcare professionals, the launch of new technologies and prudent acquisitions for a wider global reach have been resulting in the multifaceted growth of the U.S. education industry. However, the companies in the Zacks Schools industry have been facing challenges like higher advertising and marketing expenses along with costs pertaining to online education. Also, the advancement of generative artificial intelligence (AI) systems is a significant threat. That said, prudent cost management, persistent focus on driving profitability and strategic initiatives are expected to lend support to some prominent players in this industry like Stride, Inc. (LRN - Free Report) , Strategic Education, Inc. or SEI (STRA - Free Report) and American Public Education, Inc. (APEI - Free Report) . Also, for-profit education companies are forging corporate and community college partnerships to educate their workforce.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice. 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 conducting workshops and teacher training programs.
3 Trends Shaping the Future of the Schools Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping benefits from the rise in the virtual delivery of education. 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 demand for online education.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
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 such as switching to online education programs, increasing the use of technology in education, more investments in education, and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI systems: The Federal Reserve’s hawkish stance, comprising a series of rate increases to combat inflation, is making a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting 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 bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs, and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is a 17-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #26, which places it at the top 10% 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 impressive 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 top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2024 have increased 4.8%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector & S&P 500
The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.
The stocks in this industry have collectively gained 28.6% compared with the broader sector’s rise of 6.5%. Meanwhile, the S&P 500 has gained 21.2% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 22.6X versus the S&P 500’s 19.9X and the sector’s 16.6X.
Over the past five years, the industry has traded as high as 66.9X, as low as 14.3X and at a median of 30.7X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 School Stocks to Keep an Eye On
Below, we have discussed three stocks from the industry that currently have a Zacks Rank #1 (Strong Buy) or 3 (Hold) and have solid growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Public Education: Based in Charles Town, WV, APEI provides online and campus-based postsecondary education. American Public has been undertaking initiatives like affordable tuitions, online programs, strategic efforts to improve student success and strong digital marketing campaigns that are helping it in driving growth. Increased demand for affordable online higher education and nursing programs bodes well for American Public. The APUS segment has been benefiting from an increase in military-related registrations from students utilizing TA and improvements made by the Army to the ArmyIgnitED system.
APEI currently sports a Zacks Rank #1. The stock has jumped 134.8% over the past six months, outperforming the industry’s 33.4% gain. The company’s earnings estimates have increased to 54 cents per share from 44 cents over the past 60 days. This depicts analysts’ optimism over the stock’s growth potential. The estimated figure indicates a 115.8% improvement from a year ago. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: APEI
Stride: This is a Reston, VA-based technology-based education company. The company has been gaining from higher enrollment, increases in revenue per enrollment, and Adult Learning growth. Consistent demand for online learning options has been benefiting Stride’s top line in recent times. Investments focused on improving user experience, enhancing teacher tools and strengthening student engagement also bode well. Its businesses pursue strategic disciplined acquisitions that drive growth.
Stride currently sports a Zacks Rank #1. The stock has gained 58.2% over the past six months. LRN has seen an upward estimate revision for fiscal 2024 earnings to $4.00 per share from $3.98 over the past 60 days. The company’s earnings for fiscal 2024 are expected to grow 34.7%. The expected EPS growth rate for three-to-five years is 20%.
Price and Consensus: LRN
Strategic Education, Inc. or SEI: Based in Herndon, VA, SEI delivers educational services through both traditional campus-based learning and online post-secondary education, along with programs designed to equip individuals with job-ready skills. The company is likely to benefit from a strong demand environment, improved enrollment trends and strong revenue per student. Also, focus on digital learning platforms, competency-based learning models and direct assessment capabilities bodes well. The company is focusing on providing programs based on a competency-based learning model and direct assessment capabilities. One of these innovations is FlexPath. FlexPath continues to be one of the company’s fastest-growing programs, as it allows students to focus on leveraging their skills and knowledge gained during professional hours.
STRA currently carries a Zacks Rank #3. The stock has gained 33.7% over the past six months. STRA has seen an upward estimate revision for 2024 earnings to $4.32 per share and $4.29 per share over the past 60 days. The company’s earnings for 2024 are expected to register 27.9% growth year over year. Its earnings topped consensus estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 7.3%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 20.7%.
Price and Consensus: STRA
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
3 Stocks in the Thriving Schools Industry for Higher Returns
The popularity of e-books, online learning in the country, increasing demand for healthcare professionals, the launch of new technologies and prudent acquisitions for a wider global reach have been resulting in the multifaceted growth of the U.S. education industry. However, the companies in the Zacks Schools industry have been facing challenges like higher advertising and marketing expenses along with costs pertaining to online education. Also, the advancement of generative artificial intelligence (AI) systems is a significant threat. That said, prudent cost management, persistent focus on driving profitability and strategic initiatives are expected to lend support to some prominent players in this industry like Stride, Inc. (LRN - Free Report) , Strategic Education, Inc. or SEI (STRA - Free Report) and American Public Education, Inc. (APEI - Free Report) . Also, for-profit education companies are forging corporate and community college partnerships to educate their workforce.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice. 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 conducting workshops and teacher training programs.
3 Trends Shaping the Future of the Schools Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping benefits from the rise in the virtual delivery of education. 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 demand for online education.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
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 such as switching to online education programs, increasing the use of technology in education, more investments in education, and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI systems: The Federal Reserve’s hawkish stance, comprising a series of rate increases to combat inflation, is making a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting 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 bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs, and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is a 17-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #26, which places it at the top 10% 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 impressive 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 top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2024 have increased 4.8%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector & S&P 500
The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.
The stocks in this industry have collectively gained 28.6% compared with the broader sector’s rise of 6.5%. Meanwhile, the S&P 500 has gained 21.2% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 22.6X versus the S&P 500’s 19.9X and the sector’s 16.6X.
Over the past five years, the industry has traded as high as 66.9X, as low as 14.3X and at a median of 30.7X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 School Stocks to Keep an Eye On
Below, we have discussed three stocks from the industry that currently have a Zacks Rank #1 (Strong Buy) or 3 (Hold) and have solid growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Public Education: Based in Charles Town, WV, APEI provides online and campus-based postsecondary education. American Public has been undertaking initiatives like affordable tuitions, online programs, strategic efforts to improve student success and strong digital marketing campaigns that are helping it in driving growth. Increased demand for affordable online higher education and nursing programs bodes well for American Public. The APUS segment has been benefiting from an increase in military-related registrations from students utilizing TA and improvements made by the Army to the ArmyIgnitED system.
APEI currently sports a Zacks Rank #1. The stock has jumped 134.8% over the past six months, outperforming the industry’s 33.4% gain. The company’s earnings estimates have increased to 54 cents per share from 44 cents over the past 60 days. This depicts analysts’ optimism over the stock’s growth potential. The estimated figure indicates a 115.8% improvement from a year ago. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: APEI
Stride: This is a Reston, VA-based technology-based education company. The company has been gaining from higher enrollment, increases in revenue per enrollment, and Adult Learning growth. Consistent demand for online learning options has been benefiting Stride’s top line in recent times. Investments focused on improving user experience, enhancing teacher tools and strengthening student engagement also bode well. Its businesses pursue strategic disciplined acquisitions that drive growth.
Stride currently sports a Zacks Rank #1. The stock has gained 58.2% over the past six months. LRN has seen an upward estimate revision for fiscal 2024 earnings to $4.00 per share from $3.98 over the past 60 days. The company’s earnings for fiscal 2024 are expected to grow 34.7%. The expected EPS growth rate for three-to-five years is 20%.
Price and Consensus: LRN
Strategic Education, Inc. or SEI: Based in Herndon, VA, SEI delivers educational services through both traditional campus-based learning and online post-secondary education, along with programs designed to equip individuals with job-ready skills. The company is likely to benefit from a strong demand environment, improved enrollment trends and strong revenue per student. Also, focus on digital learning platforms, competency-based learning models and direct assessment capabilities bodes well. The company is focusing on providing programs based on a competency-based learning model and direct assessment capabilities. One of these innovations is FlexPath. FlexPath continues to be one of the company’s fastest-growing programs, as it allows students to focus on leveraging their skills and knowledge gained during professional hours.
STRA currently carries a Zacks Rank #3. The stock has gained 33.7% over the past six months. STRA has seen an upward estimate revision for 2024 earnings to $4.32 per share and $4.29 per share over the past 60 days. The company’s earnings for 2024 are expected to register 27.9% growth year over year. Its earnings topped consensus estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 7.3%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 20.7%.
Price and Consensus: STRA