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Will Capella Education (CPLA) Disappoint in Q2 Earnings?

Capella Education Company CPLA is scheduled to release its second-quarter 2017 financial numbers before the opening bell on Jul 25.

In the last reported quarter, the company had delivered a positive 8.05% earnings surprise. Notably, the company has surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average earnings beat of 11.62%. Let’s see how things are shaping up prior to this announcement.

Factors to be Considered this Quarter

Declining enrollment trends continues to weigh on the performance. New enrollments at Capella University is likely to decline in the low-single digit range, while total enrollment is expected to decline 1% year over year in the to-be-reported quarter.

Doctoral enrollment trends for Capella University continue to be negative. The company is investing in several initiatives to boost enrollments in doctoral programs which may dent the company’s operating margins. Operating margin from continuing operations is projected at about 13.5% to 14.5% of total revenue for the to-be-reported quarter, less than 16.9% recorded in the prior-year quarter.

Also, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at 80 cents per share, reflecting a 14.3% decline.

Nonetheless, we are encouraged by Capella’s investments in marketing, efforts to enhance relationship with employers and expansion of FlexPath offerings. Its strategy to shift from a direct-marketing aggregator channel to a relationship and brand-driven marketing strategy is expected to drive enrollments.

The company is also investing to strengthen its relationship with employers and develop new offerings to help employers attract and retain talent. Increased enrollment in bachelors and master programs under FlexPath should drive the top line. Notably, consolidated revenues are expected to rise 2.5% to 3.5% in the second quarter of 2017 from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $110 million, implying a 3.1% increase.

Earnings Whispers

Our proven model does not conclusively show that Capella is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Capella is -1.25% as the Most Accurate estimate is 79 cents while the consensus estimate is pegged higher at 80 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Capella Education Company Price and EPS Surprise

Zacks Rank: Capella has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP lowers the possibility of an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision.
 
Stocks to Consider

Here are some companies in the sector to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.

Cedar Fair, L.P. FUN is scheduled to release earnings on Aug 2. It has an Earnings ESP of +8.74% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lions Gate Entertainment Corporation LGF.A, with an Earnings ESP of +14.82% and a Zacks Rank #3, is scheduled to release quarterly results on Aug 8.

Laureate Education Inc. LAUR, with an Earnings ESP of +7.55% and a Zacks Rank #3, is expected to report earnings on Aug 10.

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Cedar Fair, L.P. (FUN): Free Stock Analysis Report
 
Lions Gate Entertainment Corporation (LGF.A): Free Stock Analysis Report
 
Capella Education Company (CPLA): Free Stock Analysis Report
 
Laureate Education Inc. (LAUR): Free Stock Analysis Report
 
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