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Why Is Adtalem (ATGE) Down 3.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Adtalem Global Education (ATGE - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Adtalem due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Adtalem Beats Q2 Earnings Estimates, Lags Revenues

Adtalem Global Education Inc. reported mixed second-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.

Earnings (excluding special items) came in at 74 cents, beating the consensus mark of 73 cents per share by 1.4%. However, revenues of $316.6 million missed the consensus estimate by 0.7%.

Adjusted earnings decreased 8.6% from 81 cents reported in the prior-year quarter. Nonetheless, total revenues increased 2.7% from the year-ago figure of $308.2 million.

Enrollments of new students in the January session increased 4.9% and that of total students grew 2.9% year over year. Adjusted operating income was $58.4 million, reflecting a decline of 4.8% year over year.

The top-line performance was mainly backed by rising enrollments in its medical and healthcare segment, along with strong Professional Education segment. The solid performance in Professional Education was driven by the refreshed product differentiation in the Becker business and continued growth in the Association of Certified Anti-Money Laundering Specialists (“ACAMS”).

However, the company’s bottom line was mainly affected by certain restructuring charges related to the closing of the Ross University School of Medicine campus in Dominica and real estate consolidations.

During the second quarter of fiscal 2019, Adtalem closed the sale of DeVry University and Carrington College. Following the sale, the company incurred a pre-tax loss of $32.7 million.

Segment Details

Medical and Healthcare: The segment’s revenues rose 4.6% from the year-ago quarter to $212.6 million, led by growth at Chamberlain University, as well as Medical and Veterinary schools.

Chamberlain University revenues were up 6.2% from the year-ago quarter. New student enrollment in the November session declined 6.7%, while that of the January session grew 6.4%. Total student count increased 3.7% in November and 3.3% in the January session.

Revenues from Medical and Veterinary schools jumped 2.4% year over year. New and total student enrollment declined 8.5% and 6.6%, respectively, in the January 2019 semester. The decrease was mainly due to the shift in starts of students in the prior fiscal year, mainly due to Hurricanes Irma and Maria. Notably, after excluding the same, new student enrollments increased 6.6%.

Yet, adjusted operating income of $47.5 million was down 13.7% from the prior-year quarter.

Professional Education: The segment’s revenues of $42.1 million were up 38.8% year over year.

Revenues at Becker increased 15.9% and that of ACAMS climbed 64.7% from the year-ago quarter. The upside mainly stemmed from the shift of the North American annual conference to the fiscal second quarter from the fiscal first quarter.

The segment’s operating income increased significantly to $9.6 million from the prior-year figure of $2.2 million.

Technology and Business: The segment recorded revenues of $62.6 million, down 16.6% year over year. The top line also declined 2.4% on a constant-currency basis, primarily due to lower tuition fee in response to student financial aid program reductions as well as increased competition.

Adjusted operating income of $8.5 million decreased 38.7% year over year.

Liquidity & Cash Flow

As of Dec 31, 2018, Adtalem’s cash and equivalents were $294.8 million compared with $430.7 million on Jun 30, 2018. Cash flow provided by operating activities totaled $70.3 million at the end of the fiscal second quarter, up from $59.9 million in the year-ago quarter.

In the fiscal second quarter, the company repurchased approximately 1.1 million shares of common stock for $56.8 million, at average purchase price of $50.18.

Fiscal Third-Quarter Guidance

Revenues are expected to grow approximately 1-2% year over year. Adjusted operating costs are expected in the range of 3-4%.

Fiscal 2019 Guidance

Total revenues are now anticipated to grow approximately 3-4% in fiscal 2019. Adjusted earnings are anticipated to grow 2-3% from a year ago. Capital spending is expected in the range of $65-$70 million. The capital spending includes about $20-$25 million for the relocation of RUSM campus to Barbados.

The effective income tax rate for the fiscal year is likely to be around 16-17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.13% due to these changes.

VGM Scores

At this time, Adtalem has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Adtalem has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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