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Here's Why Adtalem (ATGE) Stock is Worth Buying Right Now

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Adtalem Global Education Inc. (ATGE - Free Report) has been benefiting from its focus on health care unit and robust demand for OnCourse learning. Also, the Walden University buyout has been driving the company’s national healthcare education footprint.

So far this year, shares of Adtalem have gained 7.4% against the Zacks Schools industry’s 64.6% fall. The outperformance can primarily be attributable to a solid earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in seven of the trailing 10 quarters. Notably, earnings estimates for fiscal 2022 have moved up to 26.5% over the past 30 days.

Recently, the company reported fourth-quarter of fiscal 2021 results wherein earnings met the Zacks Consensus Estimate and grew 20.7%, year over year. This growth was primarily driven by strong revenues and operating leverage across the business.

This positive trend signifies analysts’ bullish sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Major Growth Drivers

Healthcare Institution Boosting Sales: Adtalem’s health care and international institutions have shown significant improvement in revenues and profitability since fiscal 2013. During fiscal 2021, Chamberlain revenues increased 10.2% to $563.8 compared to the prior year. The increase can be primarily attributed to a rise in total student enrollment during each fiscal year 2021 enrollment session along with a hike in non-tuition fee price. During fiscal 2021, revenues for the medical and veterinary schools increased 4.7% from the prior year.

Furthermore, the company acquired Laureate Education, Inc’s. leading online healthcare education unit — Walden University. Walden’s on-campus and hybrid educational offerings, high-quality online education along with diversified healthcare workforce will complement Adtalem’s strength as a leading healthcare workforce solutions provider. This acquisition will help Adtalem generate more than $300 million of free cash flow on an annual basis.

Partnership and Innovation Driving Growth: Adtalem — which shares space with GP Strategies Corporation , Lincoln Educational Services Corporation (LINC - Free Report) and Vitru Limited (VTRU - Free Report) in the same industry — has laid out strategies to ensure balanced focus of its investment initiatives to deliver direct returns to shareholders. First, the company will be paying more emphasis on partnering with corporations, hospitals, government agencies and professional organizations to design education programs aimed at teaching new skills to employees. Also, increased number of short-term programs will be introduced which are more directly aimed at meeting student’s preference and employers’ needs. It keeps on collaborating with different institutions to boost student enrollment. During fourth-quarter fiscal 2021, the company inked a partnership with Emory Healthcare in Atlanta.

Emory is working to address the enormous nurse staffing challenges across the country. This partnership is an example of the company’s workforce solutions provider strategy in action.

Increase In OnCourse Learning: In the financial service segment, OnCourse learning has been a major growth driver. During fiscal 2021, segment revenues increased 10.7% year over year to $205.5 million on higher ACAMS, OnCourse Learning and Becker revenues. OnCourse Learning’s consistent focus on execution in a favorable mortgage market and strength in the education business drove revenues for the period.

Cost-Reduction Efforts: In a bid to reduce cost pressure, Adtalem undertook various cost-saving initiatives like workforce reduction, centralized operations and curbing discretionary spending through supply management. Cost of educational services decreased due to lower bad debt expenses. The company is following a strict cost-control routine, with special emphasis on controlling and escalating costs at some of its institutions. The company is optimistic about achieving at least $60 million in annual run rate cost synergies going forward. Also, the company is positive about its portfolio management approach and effective cost management efforts to drive sustainability in revenues and EPS growth over the long term.

Superior ROE: Adtalem’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 11.7%. This compares favorably with the negative ROE of 5.2% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds and Adtalem’s ability to generate profit with minimum capital usage.


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