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School Stocks' Q3 Earnings Key Predictions for BFAM, LOPE

We are in the thick of the Q3 earnings season with results seemingly on solid ground given the positive momentum on the revenue front. Apart from maintaining the above-average proportion of positive earnings surprises, the estimate revision trend for the December quarter is pretty favorable.

According to the latest Earnings Preview, 64.2% of the total market capitalization of S&P 500 is already out. As of Oct 27, 2017, total earnings for the 272 S&P 500 members are up 8.7% year over year on 6.7% higher revenues. Of these, 75.7% surpassed earnings estimates, while 66.2% beat revenue expectations.

A Look at School Industry

Coming to the school industry within the consumer discretionary sector, currently, the Strayer Education Inc. STRA and Capella Education Inc. CPLA merger deal is in focus apart from the other earnings releases. On Oct 30, for-profit school companies Strayer Education and Capella Education agreed to an all-stock merger in a deal valued at $1.9 billion. The combined company would be named "Strategic Education Inc." when the deal closes and will trade under the STRA ticker symbol.

The deal materialized at a time when the for-profit school industry is facing challenges from market forces and tougher regulations. Enrollments have been sluggish due to regulatory challenges, changes and competition in the higher education industry.

However, the U.S. presidential election had a positive impact on the school industry as shares of for-profit education companies rallied post the victory of Donald Trump. This is largely because Trump had assured relaxed federal regulations for such companies during his campaigns.

Meanwhile, both the companies released their third-quarter numbers. Strayer Education third-quarter adjusted earnings of 34 cents per share missed the Zacks Consensus Estimate of 37 cents by 8.1%. However, earnings increased 36% year over year. Revenues increased 6% to $108.5 million from $102.2 million in the prior-year quarter, primarily buoyed by higher enrollment, which was partly offset by lower revenues per student.

Capella Education reported earnings of 73 cents per share in the quarter, which surpassed the Zacks Consensus Estimate of 68 cents by 7.4%. However, earnings declined 9.9% year over year. Capella’s quarterly revenues of $107 million fell short of the Zacks Consensus Estimate of $108.5 million by 1.4%. However, revenues improved 1% from the year-ago level despite a decline in the rate of enrollment growth.

For Q3 as a whole, total third-quarter earnings for consumer discretionary sector are projected to decline 1.1% year over year on 2.8% growth in revenues.

School Stocks Reporting on Nov 1

Two companies from the school industry are set to report their third-quarter results on Nov 1, after market close. Let's see how things are shaping up for their respective announcements.

Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Grand Canyon Education, Inc. LOPE, a provider of online post secondary education services, is slated to release results after the market closes.

The company has been doing well with its second-quarter revenues increasing 14.1% year over year in the last reported quarter on the back of 10% growth in its end-of-period enrollment. The company have been registering higher number of new working adult students for its online campus. The continued growth of the University's brand, 76 new programs, certificates and emphasis areas rolled out in the recent past, and positive results from new branded advertising campaigns designed earlier have all been contributing positively. The company’s enrollment guidance assumes mid-single-digit new start growth in the third and fourth quarter of 2017.

Per the Zacks Consensus Estimate, number of online students is expected to grow 9.5% in the third quarter.

Meanwhile, the company also expects its ground campus to continue growing by about 2,000 students per year. The consensus estimate for ground students of 19,000 reflects year-over-year growth rate of 9.3%.

Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at 75 cents, reflecting a 12.4% year-over-year increase. The consensus estimate for revenues is pegged at $231.2 million, implying a 9.8% increase.

Our proven model does not conclusively hint at an earnings beat for the company this quarter, as Grand Canyon does not have a positive Earnings ESP and a Zacks Rank #3 or higher. The company carries a Zacks Rank #3 and has an Earnings ESP of -0.44%, which further lowers the possibility of an earnings surprise.

Bright Horizons Family Solutions, Inc. BFAM is engaged in providing employer-sponsored child care, early education and work/life solutions.

The company expects 11% to 13% revenue growth in the third quarter and 22% to 25% growth for both adjusted net income and EPS, with adjusted EPS in the range of 60-61 cents. Bright Horizons continues to deliver strong and consistent results in its core operations, along with necessary investments to support continued growth and efficiency and expand the business in strategic ways.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 61 cents reflecting an increase of 24% year over year. The consensus estimate for revenues is at $427.5 million, reflecting a year-over-year increase of 11.4%.

The company also beat estimates in three of the trailing four quarters, the average beat being 2.88%. However, our model does not conclusively show that Bright Horizons is likely to beat estimates this time around. Although the company has a Zacks Rank #3, an ESP of 0.00% makes surprise prediction difficult.

You can see  the complete list of today’s Zacks #1 Rank stocks here.

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Strayer Education, Inc. (STRA): Free Stock Analysis Report
 
Capella Education Company (CPLA): Free Stock Analysis Report
 
Bright Horizons Family Solutions Inc. (BFAM): Free Stock Analysis Report
 
Grand Canyon Education, Inc. (LOPE): Free Stock Analysis Report
 
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