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Why Is Adtalem (ATGE) Down 12% Since Last Earnings Report?

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A month has gone by since the last earnings report for Adtalem Global Education (ATGE - Free Report) . Shares have lost about 12% 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 catalysts.

Adtalem's (ATGE - Free Report) Q3 Earnings Beat Estimates, Revenues Miss

Adtalem Global Education Inc. reported mixed third-quarter fiscal 2019 results, wherein earnings topped the Zacks Consensus Estimate, while revenues missed the same. Strong enrollment, growth across segments, continued strength in balance sheet, and achievement of several strategic actions were partially offset by currency headwinds in Brazil and delays in FIES funding, which negatively impacted its top-line growth.

Adjusted earnings were 68 cents, which surpassed the consensus mark of 65 cents per share by 4.6%. However, revenues of $308.6 million lagged analysts’ expectation of $316 million by 2.2%. Adjusted earnings decreased 2.9% from 70 cents reported in the prior-year quarter. The company’s bottom line was mainly affected by certain restructuring charges related to real estate consolidations in Adtalem Brazil and its home office.

Revenues & Operating Discussion

Total revenues declined 0.5% from the year-ago figure of $310.1 million. Enrollment of new students increased 15.4% and that of total students grew 4.3% year over year. Adjusted operating income totaled $50.2 million, reflecting a decline of 5.5% year over year. Following the sale of DeVry University and Carrington College during second-quarter fiscal 2019, the company incurred a pre-tax loss of $1.8 million during the reported quarter.

Segment Details

Medical and Healthcare: Revenues from the segment rose 1.6% from the year-ago quarter to $223.6 million. Excluding the impact of the shift in starts due to hurricanes Irma and Mariain in first-quarter fiscal 2018, revenues grew 3.3% year over year.

Chamberlain University revenues were flat with the year-ago level. New student enrollment (online) in the March session declined 3.7% from the prior-year quarter. However, total student count increased 3.4% in the same period, backed by strong growth in both Bachelor of Science in Nursing and graduate programs. In the fiscal third quarter, new and total student enrollment grew 4% and 3.3%, respectively, from the year-ago period. Medical and Veterinary schools’ revenues climbed 4.1% year over year. Excluding the impact of the shift in starts due to hurricanes Irma and Maria in first-quarter fiscal 2018, revenues grew 8.5% from a year ago. Adjusted operating income was $53.0 million, down 12.8% from the prior-year level.

Professional Education: The segment’s revenues came in at $35.9 million, up 14.1% year over year. Revenues at Becker increased 3% and that of ACAMS climbed 38.1% from the year-ago quarter. Moreover, the segment’s operating income increased significantly to $5.1 million from the prior-year figure of $2.4 million.

Technology and Business: The segment recorded revenues of $49.9 million, up 15.5% year over year. However, the metric declined 2% on a constant-currency basis, primarily due to higher discounting that is necessary to offset the effect of reductions and delays in government financial aid program funding. New student enrollment jumped 17.7% year over year. The same improved 8.6% from the year-ago figure, excluding distance learning. Moreover, total enrollment was up 5.6% from the year-ago period. The metric increased 2% excluding distance learning. During the quarter, the company registered adjusted operating loss of $0.8 million compared with a loss of $0.1 million in the prior-year period.

Liquidity & Cash Flow

As of Mar 31, 2019, Adtalem’s cash and equivalents were $321.2 million compared with $430.7 million on Jun 30, 2018. Cash flow provided by operating activities totaled $128.5 million at the end of the fiscal third quarter, down from $183.3 million in the year-ago period. In the fiscal third quarter, the company repurchased approximately 1.27 million shares of common stock for $61 million, at average purchase price of $48.15.

Guidance

Fiscal Fourth Quarter

Revenues are expected to grow approximately 3-4% year over year. Adjusted operating costs are anticipated to rise 3-4%.

Fiscal 2019 Guidance

Total revenues are now projected to be flat with the year-ago level. Nonetheless, adjusted earnings are anticipated to grow 2-3% from a year ago. Capital spending is expected to be nearly $65 million. 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 -6.11% due to these changes.

VGM Scores

At this time, Adtalem has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 these revisions indicates a downward shift. It's no surprise Adtalem has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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