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Zacks Industry Outlook Highlights Stride, Strategic Education, Adtalem Global Education, Perdoceo Education and Universal Technical Institute

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For Immediate Release

Chicago, IL – June 20, 2024 – Today, Zacks Equity Research discusses Stride, Inc. (LRN - Free Report) , Strategic Education, Inc. or SEI (STRA - Free Report) , Adtalem Global Education Inc. (ATGE - Free Report) , Perdoceo Education Corp. (PRDO - Free Report) and Universal Technical Institute, Inc. (UTI - Free Report) .

Industry: School


The popularity of e-books, online learning in the country, increasing demand for healthcare professionals, the launch of new technologies and prudent acquisitions for a wider global reach have resulted in the multifaceted growth of the U.S. education industry. However, the companies in the Zacks Schools industry have been facing challenges like higher advertising and marketing expenses, along with costs pertaining to online education. Also, the advancement of generative artificial intelligence (AI) systems is a significant threat.

That said, prudent cost management, a persistent focus on driving profitability and strategic initiatives are expected to lend support to some prominent players in this industry like Stride, Inc., Strategic Education, Inc. or SEI, Adtalem Global Education Inc., Perdoceo Education Corp. and Universal Technical Institute, Inc.. Also, for-profit education companies are forging corporate and community college partnerships to educate their workforce.

Industry Description

The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice.

The industry players also offer child-care services and career-oriented post-secondary courses. Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conducting workshops and teacher training programs.

3 Trends Shaping the Future of the School Industry

Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping the benefits of the rise in the virtual delivery of education. Many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned with the help of various online education platforms. Also, classroom-type-education-providing companies are cashing in on the unprecedented surge in demand for online education.

Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.

Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: To boost profitability, school companies are resorting to aggressive cost-cutting through significant layoffs, campus closings and consolidations. Developments such as switching to online education programs, increasing use of technology in education, more investments in education and the regular introduction of programs and specializations should boost student outcomes.

Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.

Higher Rates & Generative AI Systems: The Federal Reserve's hawkish stance, comprising a series of rate increases to combat inflation, made a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.

Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.

Meanwhile, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting the companies' placements and persistence. Additionally, the slowdown may compel students to default on their loans, which could increase institutions' student loan cohort default rates, ultimately bumping up bad debt expenses.

Higher default rates may also adversely impact the industry players' eligibility to participate in some Title IV programs, affecting the companies' operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Schools industry is a 16-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #13, which places it in the top 5% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since April 2024, the industry's earnings estimates for 2024 have increased to $1.09 per share from $1.08 per share.

Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.

Industry Outperforms the Sector & the S&P 500

The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 Composite over the past year.

The stocks in this industry have collectively rallied 36.9% compared with the broader sector's rise of 4.4%. Meanwhile, the S&P 500 has increased 24.1% in the said period.

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 20.8X versus the S&P 500's 21.6X and the sector's 16.9X.

Over the past five years, the industry has traded as high as 88.7X, as low as 14.4X and at a median of 29.3X.

5 School Stocks to Buy Now

Below, we have discussed five stocks from the industry that currently have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have solid growth potential. You can seethe complete list of today's Zacks #1 Rank stocks here.

Strategic Education, Inc.or SEI: Based in Herndon, VA, SEI delivers educational services through both traditional campus-based learning and online post-secondary education, along with programs designed to equip individuals with job-ready skills. The company is likely to benefit from a strong demand environment, improved enrollment trends and strong revenue per student.

Also, a focus on digital learning platforms, competency-based learning models and direct assessment capabilities bodes well. The company is focusing on providing programs based on a competency-based learning model and direct assessment capabilities. One of these innovations is FlexPath. FlexPath continues to be one of the company's fastest-growing programs as it allows students to focus on leveraging their skills and knowledge gained during professional hours.

STRA currently sports a Zacks Rank #1. The stock has surged 46.1% over the past year. STRA has seen an upward estimate revision for 2024 earnings to $4.96 per share from $4.60 per share over the past 60 days. This depicts analysts' optimism over the stock's growth potential. The company's earnings for 2024 are expected to register 33.3% growth year over year. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 36.2%.

Moreover, its three-to-five-year expected earnings per share (EPS) growth rate is currently pegged at 20.8%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.

Adtalem: This Chicago, IL-based company is a leading healthcare educator that partners with many organizations to address future workforce needs with access to academic curriculums, certifications and training programs across the medical and healthcare industries. ATGE remains well-positioned to gain from the growing demand for nurses and other healthcare professionals and their increasing roles in the healthcare industry.

The company is likely to benefit from solid enrollment growth, especially in Chamberlain and Walden, along with the efficient execution of its Growth with Purpose strategy. 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 EPS growth over the long term.

ATGE, which sports a Zacks Rank #1, has seen an upward estimate revision for fiscal 2024 earnings to $4.90 per share from $4.64 over the past 60 days. The stock has soared 62.9% over the past year. This company's earnings for fiscal 2024 are expected to grow 16.4%. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 18.8%. ATGE has an expected three- to-five-year EPS growth rate of 15%.

Stride: This is a Reston, VA-based technology-based education company. The company has been gaining from higher enrollment, increases in revenue per enrollment, and Middle - High School learning growth. Consistent demand for online learning options has been benefiting Stride's top line in recent times. Investments focused on improving user experience, enhancing teacher tools and strengthening student engagement also bode well. Its businesses pursue strategic, disciplined acquisitions that drive growth.

Stride currently sports a Zacks Rank #1. The stock has gained 73.6% over the past year. LRN has seen an upward estimate revision for fiscal 2024 earnings to $4.55 per share from $4.31 over the past 60 days. The company's earnings for fiscal 2024 are expected to grow 53.2%. The expected EPS growth rate for three to five years is 20%.

Universal Technical Institute: Headquartered in Phoenix, AZ, this company offers transportation, skilled trades and healthcare education programs across the United States. In 2024, the company continues to maintain a strong position, driven by its emphasis on boosting enrollment, revenue and profit growth through recent program launches. Additionally, it aims to maximize returns on marketing and admissions investments while optimizing workforce and facility utilization to enhance margin expansion and operating leverage.

UTI, carrying a Zacks Rank #2, has seen an upward estimate revision for fiscal 2024 earnings to 71 cents per share from 70 cents over the past 60 days. The stock has surged 116% over the past year. This company's earnings for fiscal 2024 are expected to grow 446.2%. Its earnings topped consensus estimates in two of the trailing four quarters and missed on two other occasions, with the average surprise being 49.4%. It also has a favorable VGM Score of B.

Perdoceo Education: Headquartered in Schaumburg, IL, this company offers postsecondary education programs through online, campus-based and blended learning formats across the United States. It has been benefiting from an improvement in the enrollment trend in its Colorado Technical University ("CTU") segment. The company's focus on increased investments in technology and student-serving processes drives growth.

PRDO, carrying a Zacks Rank #2, has seen an upward estimate revision for 2024 earnings to $2.21 per share from $2.12 over the past 60 days. The stock has soared 64.1% over the past year. This company's earnings for 2024 are expected to grow 5.2%. Its earnings topped consensus estimate in each of the trailing four quarters, with the average surprise being 19.6%.

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