Grand Canyon Education, Inc.’s (LOPE - Free Report) shares have rallied 31.7% so far this year against its industry’s 11.9% decline. Also, the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames.
Its price performance is backed by an impressive earnings history. Grand Canyon has been consistently surpassing earnings estimates since more than the past 25 quarters. Moreover, earnings estimates have risen over the past few weeks, suggesting that sentiments on Grand Canyon are moving in the right direction. Over the past 30 days, the Zacks Consensus Estimate for 2018 earnings has been revised upward by 3.6%.
Also, this Zacks Rank #2 (Buy) company’s robust fundamentals and expectation of outperformance in the near term raise hopes. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This post-secondary education provider, with a market cap of $5.8 billion, has strength in several key areas. Thus, adding the stock to your portfolio seems prudent at the moment.
Factors That May Drive the Stock Higher:
Earnings & Revenue Strength: Grand Canyon ended 2017 with solid revenue and earnings growth. During the first six months of 2018 as well, the company’s top line increased 9.9% to $512.5 million and operating income grew 12.8% to $148.6 million, with operating margins expanding 80 basis points. The bottom line showed solid 24.1% growth to $2.47 from $1.99 in the year-ago period. Notably, cash flow from operations increased 7.5% to $143.7 million in the first six months of 2018.
Meanwhile, end-of-period enrollment increased 9.6% year over year in the second quarter 2018, owing to 10.1% growth in online enrollment and 3.9% in ground enrollment.
Grand Canyon’s earnings growth rate for the current year is anticipated to be 23.5% compared with the industry’s 20%.
Moreover, long-term (three-five years) expected EPS growth of 16.5% promises rewards for its shareholders.
The company’s continuous investments in its full-time faculty, counseling and library services, one-on-one academic support, as well as online classroom enhancements are expected to attract more students, thereby boosting revenues.
New Business Model: Phoenix-based Grand Canyon Education Inc. sold its Grand Canyon University or GCU for $853.1 million, according to a filing on Jul 2 with the U.S. Securities and Exchange Commission. This deal is part of GCU's initiatives to revert back to its nonprofit status.
Henceforth, Grand Canyon Education’s earnings will not include GCU's net income, revenues and enrollment, but will only consist of its own earnings generated from providing services to GCU and other schools as it begins to build on its new business model.
Grand Canyon Education will provide technological, counseling, marketing, financial aid processing and other support services to GCU in return for 60% of GCU's tuition and fee revenues.
Superior ROE: Grand Canyon’s return on equity (ROE) supports its growth potential. Its ROE of 21.4% compares favorably with the industry’s average of 9.2%, implying that it is efficient in using shareholders’ funds.
Valuation Looks Rational: Grand Canyon currently has a trailing 12-month P/E ratio of 26.4, below the industry’s average of 40.5x. This indicates that the stock is undervalued compared to peers. Also, the company has a forward 12-month P/E ratio of 23.3, below the industry’s average of 27.2x. Hence, it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term as well and thus, it a good time to bet on the stock right now.
Other Stocks to Consider
Other top-ranked stocks in the same industry include Strategic Education Inc. (STRA - Free Report) , Bridgepoint Education, Inc. (BPI - Free Report) and Lincoln Educational Services Corporation (LINC - Free Report) . While Strategic Education and Bridgepoint sport a Zacks Rank #1, Cambium Learning carries a Zacks Rank #2.
Strategic Education’s earnings are expected to grow 46% for 2018.
Bridgepoint’s 2018 earnings are expected to increase 8.5%.
Lincoln Educational is expected to record 81.3% earnings growth in 2018.
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