Yahoo Finance 5 Top Stocks to Bet On From the Thriving School Industry
The popularity of e-books, online learning in the country, increasing demand for healthcare professionals, the launch of new technologies and prudent acquisitions for a wider global reach have been resulting in the multifaceted growth of the U.S. education industry. However, the companies in the Zacks Schools industry have been facing challenges like higher advertising and marketing expenses, along with costs pertaining to online education. Also, the advancement of generative artificial intelligence (AI) systems is a significant threat.
That said, prudent cost management, a persistent focus on driving profitability and strategic initiatives are expected to lend support to some prominent players in this industry like Strategic Education, Inc. or SEI STRA, Adtalem Global Education Inc. ATGE, Perdoceo Education Corporation PRDO, Universal Technical Institute, Inc. UTI and American Public Education, Inc. APEI. Also, for-profit education companies are forging corporate and community college partnerships to educate their workforce.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice. The industry players also offer child-care services and career-oriented post-secondary courses. Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conducting workshops and teacher training programs.
3 Trends Shaping the Future of the School Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping the benefits of the rise in the virtual delivery of education. Many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned with the help of various online education platforms. Also, classroom-type-education-providing companies are cashing in on the unprecedented surge in demand for online education.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: To boost profitability, school companies are resorting to aggressive cost-cutting through significant layoffs, campus closings and consolidations. Developments such as switching to online education programs, increasing the use of technology in education, more investments in education and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI Systems: The Federal Reserve’s hawkish stance, comprising a series of rate increases to combat inflation, made a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting the companies’ placements and persistence. Additionally, the slowdown may compel students to default on their loans, which could increase institutions’ student loan cohort default rates, ultimately bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is an 18-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #16, which places it in the top 6% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since February 2024, the industry’s earnings estimates for 2024 have increased to $1.12 per share from $1.10 per share.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms the Sector & the S&P 500
The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.
The stocks in this industry have collectively rallied 50.7% compared with the broader sector’s rise of 13.9%. Meanwhile, the S&P 500 has increased 31.4% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 22.5X versus the S&P 500’s 21.3X and the sector’s 17.8X.
Over the past five years, the industry has traded as high as 67.3X, as low as 14.4X and at a median of 30.5X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 School Stocks to Buy Now
Below, we have discussed five stocks from the industry that currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have solid growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Strategic Education or SEI: Based in Herndon, VA, SEI delivers educational services through both traditional campus-based learning and online post-secondary education, along with programs designed to equip individuals with job-ready skills. The company is likely to benefit from a strong demand environment, improved enrollment trends and strong revenue per student. Also, a focus on digital learning platforms, competency-based learning models and direct assessment capabilities bodes well. The company is focusing on providing programs based on a competency-based learning model and direct assessment capabilities. One of these innovations is FlexPath. FlexPath continues to be one of the company’s fastest-growing programs as it allows students to focus on leveraging their skills and knowledge gained during professional hours.
STRA currently sports a Zacks Rank #1. The stock has risen 18.1% over the past year. STRA has seen an upward estimate revision for 2024 earnings to $4.63 per share from $4.32 per share over the past 30 days. This depicts analysts’ optimism over the stock’s growth potential. The company’s earnings for 2024 are expected to register 24.5% growth year over year. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 17.2%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 18.2%.
Price and Consensus: STRA
Adtalem: This Chicago, IL-based company is a leading healthcare educator that partners with many organizations to address future workforce needs with access to academic curriculums, certifications and training programs across the medical and healthcare industries. ATGE remains well-positioned to gain from the growing demand for nurses and other healthcare professionals and their increasing roles in the healthcare industry. The company is likely to benefit from solid enrollment growth, especially in Chamberlain and Walden, along with the efficient execution of its Growth with Purpose strategy. Also, tie-ups and collaboration with different organizations are allowing Adtalem to reduce exposure to Title IV funding. The company believes that its portfolio management approach and effective cost management will help drive sustainability in revenues and earnings per share (EPS) growth over the long term.
ATGE, which sports a Zacks Rank #1, has seen an upward estimate revision for fiscal 2024 earnings to $4.64 per share from $4.31 over the past 60 days. The stock has climbed 36.7% over the past year. This company’s earnings for fiscal 2024 are expected to grow 10.2%. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 16.9%.
Price and Consensus: ATGE
Universal Technical Institute: Headquartered in Phoenix, AZ, this company offers transportation, skilled trades and healthcare education programs across the United States. In 2024, the company continues to maintain a strong position, driven by its emphasis on boosting enrollment, revenue and profit growth through recent program launches. Additionally, it aims to maximize returns on marketing and admissions investments while optimizing workforce and facility utilization to enhance margin expansion and operating leverage.
UTI, sporting a Zacks Rank #1, has seen an upward estimate revision for fiscal 2024 earnings to 70 cents per share from 62 cents over the past 60 days. The stock has climbed 120% over the past year. This company’s earnings for fiscal 2024 are expected to grow 438.5%. Its earnings topped consensus estimates in three of the trailing four quarters and missed on another occasion, with the average surprise being 126%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: UTI
Perdoceo Education: Headquartered in Schaumburg, IL, this company offers postsecondary education programs through online, campus-based and blended learning formats across the United States. It has been benefiting from an improvement in the enrollment trend in its Colorado Technical University (“CTU”) segment. Apart from higher revenues, operating efficiencies at both CTU and American InterContinental University bode well. The company’s focus on increased investments in technology and student-serving processes drives growth.
PRDO, carrying a Zacks Rank #2, has seen an upward estimate revision for 2024 earnings to $2.12 per share from $2.10 over the past 60 days. The stock has climbed 33.2% over the past year. This company’s earnings for 2024 are expected to grow 1%. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 17.2%.
Price and Consensus: PRDO
American Public Education: Based in Charles Town, WV, APEI provides online and campus-based postsecondary education. American Public has been undertaking initiatives like affordable tuitions, online programs, strategic efforts to improve student success and strong digital marketing campaigns that are helping it drive growth. The company has been benefiting from solid contributions from the APUS and HCN segments. Also, a focus on cost-saving initiatives and affordable tuition bodes well for the American Public. The APUS segment has been benefiting from an increase in military-related registrations from students utilizing Tuition Assistance or TA.
APEI currently holds a Zacks Rank #2. The stock has jumped 200.2% over the past year. The company’s earnings estimates have increased to 62 cents per share from 55 cents over the past 30 days. The estimated figure indicates a 121.2% improvement from a year ago. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 125%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: APEI
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Strategic Education Inc. (STRA) : Free Stock Analysis Report
American Public Education, Inc. (APEI) : Free Stock Analysis Report
Universal Technical Institute Inc (UTI) : Free Stock Analysis Report
Adtalem Global Education Inc. (ATGE) : Free Stock Analysis Report
Perdoceo Education Corporation (PRDO) : Free Stock Analysis Report
