Back to top

Image: Bigstock

Adtalem (ATGE) Up 17.4% in Last 6 Months: Factors to Note

Read MoreHide Full Article

Adtalem Global Education Inc. (ATGE - Free Report) has been rallying over the past few months. Its shares gained 17.4% in the last six months against the Zacks Schools industry’s 9.7% fall.

This leading global education provider has been gaining from strong demands for its healthcare programs and offerings and strategic collaboration to boost enrollment and cost-saving initiatives.

Despite the higher educational and student services cost and administrative expenses hurting Adtalem, it posted strong third-quarter fiscal 2022 revenues and earnings, thanks to the Walden acquisition.

Zacks Investment Research
Image Source: Zacks Investment Research

For fiscal 2022, the company expects revenues within $1,350-$1,390 million versus $1,112.4 million reported a year ago. It also anticipates adjusted earnings per share guidance within $3.15-$3.35 versus $2.98 registered in fiscal 2021.

Earnings estimates for the fiscal fourth quarter reflect a 25.7% year-over-year improvement. The consensus mark for revenues projects 23.8% yearly growth.

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.

Let’s dig into the factors that are expected to support Adtalem in future.

Solid Demand for Healthcare Professionals to Drive Revenue: Despite a soft enrollment trend in the past few quarters, Adtalem’s healthcare institutions are likely to boost revenues in the future. This university remains well-positioned to gain from the growing demand for nurses and other healthcare professionals and the increasing roles they play in the healthcare industry.

The company plans to capitalize on this supply-demand imbalance in nursing and the broader healthcare industry by investing in new programs in markets where it sees the maximum demand. The company is optimistic about the demand trend in the medical and healthcare segment from both students and employees.

The company has been undertaking initiatives to be a pure-play, leading provider of talent to the healthcare industry. In sync with this, Adtalem recently completed the divesture of its Financial Services segment to a consortium of Wendel Group and Colibri Group for $1 billion in cash.

This apart, it has implemented modifications in the pricing model in certain markets to align the advertised credit hour prices. Also, it has expanded the evening and weekend classes to attract more students. It further expects to open a few more campuses across the country.

Strategic Investment Bodes Well: Adtalem laid out plans to ensure a balanced focus of investment initiatives to deliver direct returns to shareholders. Firstly, the company will emphasize partnering with corporations, hospitals, government agencies and professional organizations to design education programs to teach new skills to employees. Also, more short-term programs will be introduced, which are directly aimed at meeting student’s preferences and employer’s needs.

On Nov 16, 2021, the company announced a two-year strategic partnership with the Society of Teachers of Family Medicine — a national community of academic leaders committed to developing an accomplished family medicine workforce prepared to serve as the foundation of America’s healthcare system.

Again in fiscal 2021, Adtalem acquired Laureate Education’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 complement Adtalem’s strength as a leading healthcare workforce solutions provider. Encouragingly, the combined organization will become the top provider of MDs, PhDs and nursing degrees to African Americans in the world.

Cost-Saving Efforts: Adtalem undertook various cost-saving initiatives like workforce reduction, centralized operations and curbing discretionary spending through supply management. The cost of educational services decreased due to lower bad debt expenses. The company follows a strict cost-control routine, emphasizing controlling and escalating costs at some institutions.

The company is optimistic about achieving at least $60 million in annual run-rate cost synergies in the future. Also, the company is positive about its portfolio management approach and effective cost management efforts to drive sustainability in revenues and earnings growth over the long term.

Superior ROE: Adtalem’s superior return on equity (ROE) also indicates its growth potential. The company’s ROE currently stands at 11%. This compares favorably with the negative ROE of 6.2% for the industry it belongs to. It indicates efficiency in using its shareholders’ funds and Adtalem’s ability to generate profit with minimum capital usage.

3 Other Consumer Discretionary Stock to Bet on

Lincoln Educational Services Corporation (LINC - Free Report) : Based in West Orange, NJ, this company provides career-oriented post-secondary education services to high school graduates and working adults in the United States. Improved operating performance at its campuses, consolidating facilities, a new welding program, a reinvigorated corporate partnership and changes in the admissions team have been favoring Lincoln.

Lincoln currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2022 earnings has been revised upward from 63 cents to 65 cents in the past 60 days. The projected figure indicates a 37.5% fall from the year-ago quarter’s levels.

TAL Education Group (TAL - Free Report) : Based in Beijing, the company provides tutoring services to K-12 students in the People's Republic of China.

TAL currently carries a Zacks Rank #2. Although the Zacks Consensus Estimate for fiscal 2023 earnings has deteriorated in the past 60 days to a loss of 28 cents, it reflects a 81.2% improvement from year ago period.

Perdoceo Education Corporation (PRDO - Free Report) : This Zacks Rank #2 company has been benefiting from an improvement in enrollment trends at both of its segments — Colorado Technical University (CTU) and American InterContinental University (AIU). Apart from higher revenues, operating efficiencies at CTU and AIU and the Trident acquisition bode well. The company’s focus on increased investments in technology and student-serving processes drives growth.

The Zacks Consensus Estimate for PRDO’s 2022 earnings has been revised upward from $1.32 per share to $1.38 in the past 60 days. The projected figure indicates a 18.8% fall from the year-ago quarter’s levels.