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Adtalem (ATGE) Banks on Cost Synergies Amid Low Enrollment
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Adtalem Global Education Inc. (ATGE - Free Report) has been riding on cost synergies and investments in innovation initiatives. Shares of ATGE have gained 7.2% over the past three months against the Zacks Schools industry’s decline of 8.1%.
ATGE’s second-quarter fiscal 2023 earnings and revenues surpassed the Zacks Consensus Estimate by 31.5% and 2.5%, respectively. Also, earnings grew 56% year over year. The uptrend was backed by the abovementioned tailwinds.
However, this healthcare education provider and workforce solutions innovator is facing various headwinds in the form of low enrollment and increased expenses as COVID-related woes persist. Earnings estimates for fiscal 2023 have remained unchanged for the past 60 days at $4.10 per share.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Growth Drivers
Adtalem undertook cost-saving initiatives like reducing the workforce, centralizing operations and lowering discretionary spending through supply management in order to curb the increasing cost pressure. 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 EPS growth over the long term. The company expanded operating margins during fiscal 2022 through the rollout of its new operating model and the realization of cost synergies from the Walden acquisition. In the first half of fiscal 2023 the company’s performance also reflected continued year-over-year margin expansion, driven by operational efficiencies and the realization of cost synergies. Acquisitions-driven revenues increased 8.7% in the same period.
Adtalem laid out plans to ensure a balanced focus on investment initiatives to deliver direct returns to shareholders. 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, an increased number of short-term programs will be introduced, more directly aimed at meeting students’ preference and employers’ needs. It keeps on collaborating with different institutions to boost student enrollment.
Headwinds
Pertaining to enrollment, for 2023, 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 prospective students recover from the high-pressure demands of the pandemic. Adtalem’s revenues in second-quarter fiscal 2023 declined year over year, owing to lower contributions from Walden, and Medical and Veterinary. Chamberlain’s total student enrollment declined 0.8% to 33,390 students, primarily owing to COVID-related headwinds in its post-licensure programs.
Over the last few quarters, Adtalem has been incurring increased costs, which are ultimately putting pressure on profitability. The higher restructuring expenses are weighing on profits. In the first half of fiscal 2023, the metric grew 152.3% due to real estate consolidations at Walden, Medical and Veterinary, and Adtalem’s home office. Acquisition and integration expenses associated with integrating Walden are also a concern.
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The Zacks Consensus Estimate for WYNN’s 2023 sales and EPS suggests growth of 45.2% and 122.8%, respectively, from the year-ago levels.
Ralph Lauren Corporation (RL - Free Report) currently carries a Zacks Rank #2. RL delivered a trailing four-quarter earnings surprise of 23.6% on average. Its shares have rallied 26.4% in the past six months.
The Zacks Consensus Estimate for RL’s fiscal 2024 sales and EPS suggests growth of 5.5% and 14%, respectively, from the year-ago levels.
InterContinental Hotels Group PLC (IHG - Free Report) currently carries a Zacks Rank #2. Shares of IHG have gained 33% in the past six months. The long-term earnings growth rate of the company is 13.6%.
The Zacks Consensus Estimate for IHG’s 2023 sales and EPS suggests growth of 9.8% and 16%, respectively, from the year-ago period’s reported levels.
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Adtalem (ATGE) Banks on Cost Synergies Amid Low Enrollment
Adtalem Global Education Inc. (ATGE - Free Report) has been riding on cost synergies and investments in innovation initiatives. Shares of ATGE have gained 7.2% over the past three months against the Zacks Schools industry’s decline of 8.1%.
ATGE’s second-quarter fiscal 2023 earnings and revenues surpassed the Zacks Consensus Estimate by 31.5% and 2.5%, respectively. Also, earnings grew 56% year over year. The uptrend was backed by the abovementioned tailwinds.
However, this healthcare education provider and workforce solutions innovator is facing various headwinds in the form of low enrollment and increased expenses as COVID-related woes persist. Earnings estimates for fiscal 2023 have remained unchanged for the past 60 days at $4.10 per share.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Growth Drivers
Adtalem undertook cost-saving initiatives like reducing the workforce, centralizing operations and lowering discretionary spending through supply management in order to curb the increasing cost pressure. 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 EPS growth over the long term. The company expanded operating margins during fiscal 2022 through the rollout of its new operating model and the realization of cost synergies from the Walden acquisition. In the first half of fiscal 2023 the company’s performance also reflected continued year-over-year margin expansion, driven by operational efficiencies and the realization of cost synergies. Acquisitions-driven revenues increased 8.7% in the same period.
Adtalem laid out plans to ensure a balanced focus on investment initiatives to deliver direct returns to shareholders. 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, an increased number of short-term programs will be introduced, more directly aimed at meeting students’ preference and employers’ needs. It keeps on collaborating with different institutions to boost student enrollment.
Headwinds
Pertaining to enrollment, for 2023, 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 prospective students recover from the high-pressure demands of the pandemic. Adtalem’s revenues in second-quarter fiscal 2023 declined year over year, owing to lower contributions from Walden, and Medical and Veterinary. Chamberlain’s total student enrollment declined 0.8% to 33,390 students, primarily owing to COVID-related headwinds in its post-licensure programs.
Over the last few quarters, Adtalem has been incurring increased costs, which are ultimately putting pressure on profitability. The higher restructuring expenses are weighing on profits. In the first half of fiscal 2023, the metric grew 152.3% due to real estate consolidations at Walden, Medical and Veterinary, and Adtalem’s home office. Acquisition and integration expenses associated with integrating Walden are also a concern.
Zacks Rank & Key Picks
ATGE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some better-ranked stocks from the Zacks Consumer Discretionary sector.
Wynn Resorts, Limited (WYNN - Free Report) currently has a Zacks Rank #2 (Buy). WYNN has a trailing four-quarter earnings surprise of 0.6%, on average. Shares of the company have gained 92.4 % in the past six months.
The Zacks Consensus Estimate for WYNN’s 2023 sales and EPS suggests growth of 45.2% and 122.8%, respectively, from the year-ago levels.
Ralph Lauren Corporation (RL - Free Report) currently carries a Zacks Rank #2. RL delivered a trailing four-quarter earnings surprise of 23.6% on average. Its shares have rallied 26.4% in the past six months.
The Zacks Consensus Estimate for RL’s fiscal 2024 sales and EPS suggests growth of 5.5% and 14%, respectively, from the year-ago levels.
InterContinental Hotels Group PLC (IHG - Free Report) currently carries a Zacks Rank #2. Shares of IHG have gained 33% in the past six months. The long-term earnings growth rate of the company is 13.6%.
The Zacks Consensus Estimate for IHG’s 2023 sales and EPS suggests growth of 9.8% and 16%, respectively, from the year-ago period’s reported levels.