Earnings Scorecard: Capella - Analyst Blog
November 01 2011 - 12:00PM
Zacks
Capella Education Company (CPLA), one of the
largest rent-to-own operators, recently delivered
better-than-expected third-quarter 2011 results.
Street analysts had nearly a week to ponder on the news. In the
subsequent paragraphs, we will cover the recent earnings
announcement, analysts’ estimate revisions as well as the Zacks
Rank and long-term recommendation on the stock.
Earnings Report Review
Capella’s quarterly earnings of 66 cents a share beat the Zacks
Consensus Estimate of 59 cents, but dropped 17.5% from 80 cents
earned in the prior-year quarter.
The quarterly revenue of $102.3 million came ahead of the Zacks
Consensus Estimate of $101 million but fell 2.6% from the year-ago
quarter.
(Read our full coverage on this earnings report: Capella Beats
Estimate)
Agreement of Estimate Revisions
Following the earnings release, a mixed sentiment is evident
among analysts. In the last 7 days, 2 out of the 14 analysts
covering the stock increased their estimates while 7 lowered the
same for fourth-quarter 2011. For first-quarter 2012, 2 analysts
revised the estimate in the upward direction, while 1 chopped the
estimate in the last 7 days.
For fiscal 2011, 6 analysts have increased their estimates in
the last 7 days, while 4 lowered the projection. For fiscal 2012, 7
analysts revised their estimate in the upward direction, while 5
lowered the same.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate came down by 2
cents to 91 cents for the fourth quarter of fiscal 2011, while it
increased from 6 cents to 82 cents for first-quarter 2012.
For fiscal 2011, the Zacks Consensus Estimate remained stagnant
at $3.50, while it increased by 6 cents to $3.16 for FY12, in the
last 7 days.
The current Zacks Consensus for fourth-quarter 2011 is pegged
from a low of 86 cents to a high of 94 cents. For fiscal 2011, the
estimates range from $3.30 to $3.56.
Factors Driving Estimates
Capella is witnessing a fall in enrollments. After falling 1.5%
in second-quarter 2011, total active enrollment dropped 7.5% in the
third quarter.
However, Capella now expects total enrollment to decline at a
softer rate between 4% and 6% in the fourth quarter. The company
also cautioned that new enrollment in the quarter is expected to
tumble but at a lower rate of approximately 10%, following a sharp
decline of 36% in the third quarter.
Moreover, the Department of Education had proposed that an
educational program could only qualify for Title IV funds, if it
helps in achieving gainful employment, including the criteria of
loan repayment rate and debt-to-income ratios. The institutions are
under 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 the use of student’s grant.
However, Capella Education’s strong focus toward working adults
and exclusive online education has enabled it to establish a
healthy position in the for-profit post-secondary education
industry. Moreover, the company’s sustained effort to expand
educational programs helps it to boost enrollments. These
initiatives provide a strong upside to the company’s future
top-line potential.
Moreover, higher education sees a countercyclical movement
during sluggish economic conditions. Postsecondary enrollments tend
to rise as both unemployed and employed workers return to school to
reskill themselves and existing students remain in school for a
longer duration compelled by the intensely competitive job
market.
Currently, we have a long-term Outperform rating on the stock.
Moreover, Capella, which competes with Apollo Group
Inc. (APOL) and Strayer Education Inc.
(STRA), holds a Zacks #3 Rank that translates into a short-term
Hold recommendation.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years
ago that earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking discovery
into two of the most celebrating stock rating systems in use today.
The Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months). These
“Earnings Estimate Scorecard” articles help analyze the important
aspects of estimate revisions for each stock after their quarterly
earnings announcements. Learn more about earnings estimates and our
proven stock ratings at: http://www.zacks.com/education/
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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