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Why Hold Strategy is Apt for Adtalem (ATGE) Stock Right Now

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Adtalem Global Education Inc. (ATGE - Free Report) has been benefiting from robust financial performance by the Medical and Healthcare segment and rise in total enrollment at Chamberlain University. So far this year, shares of Adtalem have gained 9.8% against Zacks Schools industry’s 29.8% fall.

However, the company is witnessing incremental variable costs and disruptions related to pandemic.

Major Growth Drivers

Healthcare Institution Driving Growth: Since 2013, Adtalem’s health care institutions have considerably driven revenues and profitability. In particular, health care institution Chamberlain’s new and total student enrollment was solid in the third quarter of fiscal 2021, improving 6.8% and 5.8% in the March session, and 8.1% and 10.2% in the December session, respectively, from a year ago. Also, Chamberlain revenues increased 8.3% (or $11.2 million) to $146.3 million. The increase was mainly driven by a rise in total student enrollment and a hike in non-tuition fee price.

The company is gaining from the rising demand for nurses and healthcare professionals across the country and is hopeful about this demand trend in the medical and healthcare segment, both from students and employees.

Furthermore, the company applied various changes in its pricing model to better align advertised credit hour price. Also, the introduction of weekend and evening classes has attracted students from all sectors. This will drive the segment’s revenues in the near term.

Walden Buyout: Recently, Adtalem agreed to acquire Walden University, an online healthcare education unit of Laureate Education. The transaction is expected to be completed in first-quarter fiscal 2022. Walden’s on-campus composite educational offerings, high-quality online education along with diverse healthcare human resource will complement Adtalem’s strength as a leading healthcare workforce solutions provider.

Focus on OnCourse Learning: Adtalem’s growth strategy is largely dependent on the financial service segment’s OnCourse learning. During the third quarter of fiscal 2021, segment revenues increased 14.3% to $50.4 million year over year on higher ACAMS, OnCourse Learning and Becker revenues. During that period, the company witnessed increased demand for OnCourse Learning in the mortgage and banking sectors. Due to the pandemic-led social distancing protocols, the company is mainly focusing on virtual technology capabilities as well as adjusted offerings for its students, customers and employer partners. Also, the company has expanded its B2C and B2B offerings.

 

Concerns

During third-quarter fiscal 2021, the company witnessed revenue losses of $9 million, operating income losses of approximately $6 million, and loss of earnings per share of around 9 cents. The dismal performance was primarily caused by negative impacts of the coronavirus pandemic. Also, revenues from the medical and veterinary schools decreased 9.1% from the prior year owing to lower medical school clinical revenues due to COVID-related clinical program limitations.

Moreover, Adtalem has encountered increased costs which are impacting the company’s profitability. Student services and administrative expenses totaled $108.5 million in the third quarter of fiscal 2021, up 12.5% year over year primarily because of higher advertising, marketing and technology-related expenses.

Zacks Rank & Key Picks

Currently, Adtalem carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include GP Strategies Corporation (GPX - Free Report) , Lincoln Educational Services Corporation (LINC - Free Report) and Stride, Inc. (LRN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GP Strategies and Lincoln Educational’s earnings for 2021 are expected to rise 41.1% and 63.9%, respectively.

Stride has a three-five-year earnings per share growth rate of 20%.

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