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DeVry Down to Underperform

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We recently downgraded our rating on DeVry, Inc from Neutral to Underperform following the dismal fourth quarter top and bottom-line results.

DeVry’s fourth quarter 2012 earnings of 47 cents per share declined 56% from the prior-year quarter due to lower revenues and higher operating costs. Net sales also fell 7.5% year over year to $505.9 million, missing the Zacks Consensus Sales Estimate of $510 million due to lower enrollments, lower-than-expected revenue at its subsidiary Advanced Academics, and increased use of scholarships.

In late July 2012, DeVry had pre-announced a disappointing financial outlook for the fourth quarter. It warned that its revenue and earnings would fall short on both year-on-year and sequential basis. Finally, the reported results were almost in line with the lowered guidance.  DeVry’s share price has gone down by more than 25% since the pre-announcement. Read our full report on fourth quarter results at DeVry's 4Q Falls on Weak Enrollments.

In the fourth quarter, DeVry’s total postsecondary enrollments across all its programs were down 3.4% over the prior-year quarter. The company has been witnessing a persistent decline in enrollments due to a weak macroeconomic environment and subsequent decline in student demand (due to the hesitancy over taking a loan). Further, modifications made to the business to comply with new regulations, have also been hurting enrollment growth. The competitive landscape is also intense. Significant accomplishments at DeVry’s growing institutions like Chamberlain, Ross, Becker and DeVry Brasil have been overshadowed by enrollment declines at institutions in transition like DeVry University and Carrington.

We believe that though management is trying to improve its business to regain enrollment growth and control costs, it might take time for these initiatives to deliver the desired results. Other than this, a difficult regulatory environment and rising abuse of student aid also create significant overhangs.

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