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Adtalem Global Education Inc. (ATGE - Free Report) has been benefiting from operational efficiency and the realization of cost synergies associated with the Walden integration amid challenges associated with the higher education industry.
Shares of this leading healthcare education provider and workforce solutions innovator have gained 36.7% year to date, outperforming the Zacks Schools industry’s 0.2% decline.
Adding ATGE stock to the portfolio will not disappoint investors as it possesses a solid VGM Score of A, along with a strong long-term earnings growth rate of 15%. Also, the earnings for fiscal 2023 are expected to register 25.9% growth from fiscal 2022.
However, COVID-related headwinds and a challenging macro environment marked by high inflation and a tight labor market are major concerns.
Image Source: Zacks Investment Research
Let’s delve deeper into the major driving factors.
Cost-Saving Efforts: Adtalem has been undertaking cost-saving initiatives like workforce reduction, centralized operations and curbing discretionary spending through supply management to address increasing cost pressure. The cost of educational services decreased due to lower bad debt expenses.
The company follows a strict cost-control routine, with special emphasis on controlling and escalating costs at some of its institutions. Also, tie-ups and collaboration with different organizations are allowing Adtalem to reduce exposure to Title IV funding. The company believes that its portfolio management approach and effective cost management will help drive sustainability in revenues and earnings per share growth over the long term.
Notably, its performance in the first quarter of fiscal 2023 also reflects continued year-over-year margin expansion driven by operational efficiencies and the realization of cost synergies. Adjusted operating margin expanded 580 basis points to 18.4%, driven by integration and cost reduction efforts. Adjusted EBITDA margin increased 560 bps to 23.1% year over year.
Walden Buyout: Earlier 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. In the first quarter of fiscal 2023, revenues increased 22.7% year over year, driven by the benefits received from the Walden acquisition.
Healthcare Institutions: Adtalem’s healthcare and international institutions have shown significant improvement in revenues and profitability since fiscal 2013. Although the company has been witnessing lower enrollment due to COVID-related headwinds, particularly in post-licensure nursing programs, the company expects demand for healthcare professionals to outpace supply in future.
ATGE continues to refine its recruitment and retention strategies and has been closely monitoring market signals affecting demand. A few modestly encouraging indicators include the fall 2022 preliminary enrollment data published by the National Student Clearinghouse, which indicated a reduction in the rate of decline of enrollments compared to 2021.
In addition, it has been witnessing improving trends in online search for nursing programs after over a year of decline, indicative of improving market dynamics. Finally, it continues to see year-over-year improvement in persistence across all segments.
In light of these indicators, the company remains cautiously optimistic that the demand environment will improve in the latter half of fiscal 2023, which will enable ATGE to leverage the benefits of the investments it has been making now.
Headwinds
The higher education industry is operating in a challenging macro environment marked by high inflation and a tight labor market. Post-licensure nursing enrollments have been particularly challenged as that population of prospective students recovers from the high-pressure demands of the pandemic.
The COVID-19 pandemic resulted in revenue losses of $47 million, operating income losses of approximately $33 million and loss of earnings per share of around 50 cents in fiscal 2021. The same impacted fiscal 2022. Fiscal first, second, third and fourth quarters’ total student enrollment dropped 4.5%, 6.1%, 6.3% and 7.2% year over year, respectively, mainly due to COVID-related headwinds in its post-licensure online nursing programs leading to fewer new starts.
In the first quarter of fiscal 2023, Chamberlain’s total student enrollment declined 4% to 33,153 students, primarily owing to COVID-related headwinds in Chamberlain’s post-licensure programs.
Better-ranked stocks in the same industry include Grand Canyon Education, Inc. (LOPE - Free Report) , Perdoceo Education Corporation (PRDO - Free Report) and PowerSchool Holdings, Inc. (PWSC - Free Report) , all carrying a Zacks Rank #2 (Buy).
Grand Canyon Education has been benefiting from an increase in the Grand Canyon University (GCU) traditional campus enrollments and higher revenue per student. Also, the company has been working with GCU on two main strategies (B2B and the rollout of new and relevant programs) to offset the downturn in online enrollment. On the back of these measures, new student enrollment injected positivity in third-quarter 2022, and management expects it to return to total online enrollment growth in the first half of 2023.
LOPE stock has gained 29.1% year to date (YTD). This company’s earnings estimate for 2023 has increased to $6.35 per share from $6.21. The estimated figure is expected to register 8.6% growth from a year ago.
Perdoceo Education’s focus on increased investments in technology and student-serving processes and the acquisition of California Southern University bodes well. Also, a meaningful improvement in student retention and engagement is expected to drive growth.
PRDO stock has gained 20.3% YTD. This company’s earnings estimate for 2023 has increased to $1.42 per share from $1.37 over the past 30 days.
PowerSchool Holdings is one of the leaders in providing mission-critical solutions to the growing online K-12 schooling market. Growing pipeline and demand for the company’s differentiated unified platform of best-in-class solutions will benefit PowerSchool in generating revenues.
PWSC stock has gained 20.7% YTD. The company’s earnings for 2023 are expected to grow 10.7%. The earnings estimate for 2023 has increased to 87 cents per share from 86 cents over the past 30 days.
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Adtalem (ATGE) Rises 36.7% YTD Amid Low Enrollment Environment
Adtalem Global Education Inc. (ATGE - Free Report) has been benefiting from operational efficiency and the realization of cost synergies associated with the Walden integration amid challenges associated with the higher education industry.
Shares of this leading healthcare education provider and workforce solutions innovator have gained 36.7% year to date, outperforming the Zacks Schools industry’s 0.2% decline.
Adding ATGE stock to the portfolio will not disappoint investors as it possesses a solid VGM Score of A, along with a strong long-term earnings growth rate of 15%. Also, the earnings for fiscal 2023 are expected to register 25.9% growth from fiscal 2022.
However, COVID-related headwinds and a challenging macro environment marked by high inflation and a tight labor market are major concerns.
Image Source: Zacks Investment Research
Let’s delve deeper into the major driving factors.
Cost-Saving Efforts: Adtalem has been undertaking cost-saving initiatives like workforce reduction, centralized operations and curbing discretionary spending through supply management to address increasing cost pressure. The cost of educational services decreased due to lower bad debt expenses.
The company follows a strict cost-control routine, with special emphasis on controlling and escalating costs at some of its institutions. Also, tie-ups and collaboration with different organizations are allowing Adtalem to reduce exposure to Title IV funding. The company believes that its portfolio management approach and effective cost management will help drive sustainability in revenues and earnings per share growth over the long term.
Notably, its performance in the first quarter of fiscal 2023 also reflects continued year-over-year margin expansion driven by operational efficiencies and the realization of cost synergies. Adjusted operating margin expanded 580 basis points to 18.4%, driven by integration and cost reduction efforts. Adjusted EBITDA margin increased 560 bps to 23.1% year over year.
Walden Buyout: Earlier 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. In the first quarter of fiscal 2023, revenues increased 22.7% year over year, driven by the benefits received from the Walden acquisition.
Healthcare Institutions: Adtalem’s healthcare and international institutions have shown significant improvement in revenues and profitability since fiscal 2013. Although the company has been witnessing lower enrollment due to COVID-related headwinds, particularly in post-licensure nursing programs, the company expects demand for healthcare professionals to outpace supply in future.
ATGE continues to refine its recruitment and retention strategies and has been closely monitoring market signals affecting demand. A few modestly encouraging indicators include the fall 2022 preliminary enrollment data published by the National Student Clearinghouse, which indicated a reduction in the rate of decline of enrollments compared to 2021.
In addition, it has been witnessing improving trends in online search for nursing programs after over a year of decline, indicative of improving market dynamics. Finally, it continues to see year-over-year improvement in persistence across all segments.
In light of these indicators, the company remains cautiously optimistic that the demand environment will improve in the latter half of fiscal 2023, which will enable ATGE to leverage the benefits of the investments it has been making now.
Headwinds
The higher education industry is operating in a challenging macro environment marked by high inflation and a tight labor market. Post-licensure nursing enrollments have been particularly challenged as that population of prospective students recovers from the high-pressure demands of the pandemic.
The COVID-19 pandemic resulted in revenue losses of $47 million, operating income losses of approximately $33 million and loss of earnings per share of around 50 cents in fiscal 2021. The same impacted fiscal 2022. Fiscal first, second, third and fourth quarters’ total student enrollment dropped 4.5%, 6.1%, 6.3% and 7.2% year over year, respectively, mainly due to COVID-related headwinds in its post-licensure online nursing programs leading to fewer new starts.
In the first quarter of fiscal 2023, Chamberlain’s total student enrollment declined 4% to 33,153 students, primarily owing to COVID-related headwinds in Chamberlain’s post-licensure programs.
Zacks Rank & Key Picks
Adtalem currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better-ranked stocks in the same industry include Grand Canyon Education, Inc. (LOPE - Free Report) , Perdoceo Education Corporation (PRDO - Free Report) and PowerSchool Holdings, Inc. (PWSC - Free Report) , all carrying a Zacks Rank #2 (Buy).
Grand Canyon Education has been benefiting from an increase in the Grand Canyon University (GCU) traditional campus enrollments and higher revenue per student. Also, the company has been working with GCU on two main strategies (B2B and the rollout of new and relevant programs) to offset the downturn in online enrollment. On the back of these measures, new student enrollment injected positivity in third-quarter 2022, and management expects it to return to total online enrollment growth in the first half of 2023.
LOPE stock has gained 29.1% year to date (YTD). This company’s earnings estimate for 2023 has increased to $6.35 per share from $6.21. The estimated figure is expected to register 8.6% growth from a year ago.
Perdoceo Education’s focus on increased investments in technology and student-serving processes and the acquisition of California Southern University bodes well. Also, a meaningful improvement in student retention and engagement is expected to drive growth.
PRDO stock has gained 20.3% YTD. This company’s earnings estimate for 2023 has increased to $1.42 per share from $1.37 over the past 30 days.
PowerSchool Holdings is one of the leaders in providing mission-critical solutions to the growing online K-12 schooling market. Growing pipeline and demand for the company’s differentiated unified platform of best-in-class solutions will benefit PowerSchool in generating revenues.
PWSC stock has gained 20.7% YTD. The company’s earnings for 2023 are expected to grow 10.7%. The earnings estimate for 2023 has increased to 87 cents per share from 86 cents over the past 30 days.