Earnings Preview: Capella - Analyst Blog
October 24 2011 - 10:00AM
Zacks
Capella Education
Company (CPLA), a provider of online
education, is scheduled to report its third-quarter 2011 financial
results on Tuesday, October 25, 2011. The current Zacks Consensus
Estimate for the quarter is 60 cents a share. The Zacks Consensus
estimates revenue at $101 million for the second
quarter.
Second-Quarter 2011, a
Synopsis
On July 26, 2011, Capella
delivered better-than-expected second-quarter 2011 results. The
quarterly earnings of 99 cents a share beat the Zacks Consensus
Estimate of 90 cents, and grew 15.1% from 86 cents earned in the
prior-year quarter.
The quarterly revenue of
$106.4 million rose 1.2% from the prior-year quarter but fell
marginally short of the Zacks Consensus Estimate of $107 million.
The increase in the top line dovetails with management’s guidance
range of flat to 2% growth. Capella now expects revenue to fall by
2.5% to 4% in third-quarter 2011.
Total active enrollment
dropped 1.5% to 38,072 during the quarter. Management had earlier
guided enrollment to fall by 1% to 3% in the quarter. New
enrollment plunged 41.6% during the quarter, reflecting tough
market conditions, changes with respect to program accreditation,
and stringent admissions criteria.
Third-Quarter 2011
Consensus
The analysts surveyed by
Zacks, expect Capella to post third-quarter 2011 earnings of 60
cents a share. The current Zacks Consensus Estimate compares with
80 cents a share earned in the year-ago quarter. The estimates in
the current Zacks Consensus for the quarter range from a low of 57
cents to a high of 63 cents.
Zacks Agreement &
Magnitude
Of the 14 analysts
following the stock, none revised their estimates upward or
downward in the last 30 or 7 days, thereby keeping the Zacks
Consensus Estimate unchanged.
Mixed Earnings Surprise
History
With respect to earnings
surprises, Capella has missed as well as topped the Zacks Consensus
Estimate over the last four quarters in the range of negative 1.8%
to positive 18.3%. The average remained at positive 7.3%. This
suggests that Capella has beaten the Zacks Consensus Estimate by an
average of 7.3% in the trailing four quarters.
Price
Stats
Since its last earnings
release on July 26, 2011, Capella’s market price has plunged 35.4%
to $30.21 on October 21, 2011. During trading hours on October 21,
the stock price reached the day low of $29.64 and the day high of
$30.38.
The stock price is within
the range of the 52-week low-high range of $26.12 attained on
October 4, 2011 and $69.85 achieved on January 4, 2011. Over the
period from July 26, 2011 to October 21, 2011, the stock dropped to
a low of $26.12 on October 4, 2011 and rose to a high of $47.89 on
July 26, 2011.
Let’s
Conclude
We observe that Capella is
witnessing a fall in enrollment. After increasing 7.3% in
first-quarter 2011, total active enrollment slipped 1.5% in the
second quarter. Capella now expects total enrollment to fall by 6%
to 8% in third-quarter 2011.
The risk looming over the
education sector is the regulation proposed by the Department of
Education that is weighing upon students enrollment and the
company’s profits. The Department of Education proposed that an
educational program could only qualify for Title IV funds, if it
helps in achieving gainful employment, which includes the criteria
of loan repayment rate and debt-to-income ratios.
The institutions are under
the scanner due to the rise in the default rate of student loans,
and are now being asked to submit information relating to
recruitment procedures and use of student’s grant.
Capella cautioned that new
enrollment in third-quarter 2011 is expected to tumble by
approximately 30%. Management hinted that other for-profit
education institutes facing tougher norms are chasing Capella's
students who are financially sound and have better loan repayment
rates.
The company generally
focuses on working adults, and in order to draw students it is also
ramping up its marketing and promotional expenditures, which rose
7.8% to $30.8 million during the second quarter. To counter
sluggishness in students’ enrollment, education companies are also
resorting to restructuring their cost base.
Currently, we maintain our
long-term ‘Neutral’ recommendation on the stock. Moreover, Capella,
which competes with Apollo Group
Inc. (APOL) and
Strayer
Education Inc. (STRA), holds a Zacks #3 Rank,
which translates into a short-term ‘Hold’ rating and correlates
with our long-term view.
APOLLO GROUP (APOL): Free Stock Analysis Report
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
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