DeVry's (DV) Healthcare Units Impress, Universities A Drag

On Sep 14, 2016, we issued an updated research report on DeVry Education Group Inc. (NYSE:DV) , a provider of educational services worldwide.

Headquartered in Downers Grove, IL, DeVry provides secondary and post-secondary education, primarily in the U.S., as well as in Canada, some Caribbean countries, Brazil, Europe, the Middle East and the Pacific Rim.

Recently, DeVry reported robust fourth-quarter fiscal 2016 results, surpassing the Zacks Consensus Estimate for both sales and earnings for the second quarter in a row. The company’s earnings increased year over year owing to improved operating performance. Although DeVry’s revenues declined 0.3%, the rate of decline was narrower than the company’s expectation of a 2–3% decline.

Among its three reporting segments, two units -- health care and international institutions -- have shown significant improvement in revenues and profitability throughout fiscal 2013, fiscal 2014 and fiscal 2015. The trend continued in fiscal 2016 as well.

Particularly, healthcare institutions, Chamberlain and Ross, gained on strong demand for jobs in the field of healthcare across the U.S. There is an acute shortage of trained nurses worldwide. There are even fewer numbers of infrastructure and faculties to train nurses. As a result, demand for these nursing programs is huge. The company believes that this demand supply gap will continue driving growth at the segment in the near term. Medical and Healthcare segment represented 50.8% of revenues in fiscal 2016 – an improvement of about 9% year over year.

That said, the company has been witnessing a persistent decline in enrollments at its flagship institution, DeVry University, which accounts for a major portion of its revenues. DeVry’s net sales declined 3.5% year over year in fiscal 2016 due to weak enrollment trends at DeVry University. Higher growth investments in health care schools and declining enrollment levels at DeVry University due to soft demand have been hurting the company’s profits over the past few quarters. DeVry does not expect its results to show any significant improvement in the near term.

Apart from DeVry, another private education company Capella Education Company (NASDAQ:CPLA) is struggling to attain decent enrollment levels.

Nevertheless, the company is undertaking several student-focused initiatives at DeVry University to return to growth and transform this business. The transformation moves for the university includes the improvement of both student experience and affordability of the programs, and strategically marketing DeVry University. These strategies are designed to make DeVry University more appealing to students and improve persistence rate. However, all these initiatives are yet to pay off and will take time to show results.

Zacks Rank & Key Picks

DeVry carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer discretionary sector include Lincoln Educational Services Corporation (NASDAQ:LINC) , Apollo Education Group Inc. and New Oriental Education & Technology Group Inc. (NYSE:EDU) . While Lincoln Educational Services sports a Zacks Rank #1 (Strong Buy), Apollo Education Group and New Oriental Education & Technology Group hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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DEVRY EDUCATION (DV): Free Stock Analysis Report

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