Stocks | Smart Investing In Education Stocks

Private sector schools are stepping in to meet the growing demand for higher education. This is leading to more opportunities for investing in an education stock.

Going back to school is certainly not a new trend. For many years adults have been trading in 9 to 5 schedules for text books and classrooms. Others have opted to continue working regular jobs and taking on classes at night or on the weekends.

Today, the going back to school is more popular than ever as unemployment rates continue to remain high. Some are going back to school for the same reasons as always, to move further up the career ladder, to pick up specific skills or knowledge that will benefit their current career or for personal enrichment.

Lately, a new movement has taken shape in the higher education arena. Individuals who hadn’t considered going back to school are doing so mainly because they were laid off and have had no luck finding work in today’s economy of 10% unemployment.

That is not the only new observable fact in higher education. Private sector schools like DeVry (DV – Analyst Report) and Lincoln Educational Services Corporation (LINC – Snapshot Report) are stepping in to meet the growing demand for higher education as colleges and universities struggle amid an environment of shrinking state budgets and endowments.

In DeVry’s recent fiscal second-quarter report, President and CEO Daniel Hamburger said, ?At a time when state budget cuts and shrinking endowments are making it difficult for colleges and universities to meet the increasing demand for quality education in this country, the private sector is playing an important role in helping to educate our country’s workforce and ensuring that we remain competitive in the global marketplace.?

Because of the increasing demand for higher education in the private sector and in light of the stellar second-quarter results delivered by DeVry, I decided to delve into a few education stocks.

In addition to DeVry (DV – Analyst Report), the education stocks I looked at are Strayer Education Inc. (STRA – Analyst Report), Lincoln Educational Services Corporation (LINC – Snapshot Report) and Apollo Group Inc. (APOL – Analyst Report).

Setting the Stage for Other Education Stocks

Lets start with the education stock that has already reported. DeVry (DV – Analyst Report) turned in a robust second quarter.

Earnings of $1.00 per share topped the previous year’s 59 cents and exceeded the Zacks Consensus Estimate by 20.5%. DeVry boasts a solid track record of beating the Zacks Consensus Estimate, missing forecasts only once since 2007.

The company’s second-quarter revenues of $904.1 million were up 34% year-over-year.

Shares of DV spiked 13% on the strong results. As the market sold off in recent sessions, shares have declined a bit. The recent dip can be a great buying opportunity as DeVry’s fundamentals point to continued strength going forward.

The Zacks Consensus Estimate advanced on the strong quarter. For the fiscal year ending June 2010, projections of $3.44 per share are up from $3.23 over the past week. For the following year, forecasts of $4.16 were increased from $3.93 over the past week.

The company’s valuation is decent as evidenced by a forward P/E of 17.5. DeVry’s balance sheet shows no debt. As an added bonus, DeVry rewards shareholders with a dividend yield of 0.33%, while most education stocks pay no dividend.

3 Education Stocks That Could Make You a Smart Investor

If DeVry’s results are any indication, investing in the following 3 education stocks before they report may prove to be very lucrative, especially when taking into account their strong fundamentals.

While all the education stocks featured in this article have a solid record of exceeding earnings expectations, Strayer Education Inc. (STRA – Analyst Report) stands out as it has consistently topped the Zacks Consensus Estimate dating back to April 2005.

Strayer is scheduled to report fourth-quarter results on Feb 11.

The company saw third-quarter earnings of $1.21 per share, outpacing the previous year’s 83 cents and surpassing the Zacks Consensus Estimate by 4%.

In comparison to the other education stocks in this article, STRA does have the highest valuation with a forward P/E of 21.9, which is not cheap but also not overly expensive.

Strayer also has no debt on its balance sheet. The company’s return on equity (ROE) of 59% is pretty much in line with where other education stocks stand as the industry average is 58%. This education stock also pays a dividend. Yielding 1.3%, it offers the highest dividend among the education stocks in this investment idea.

Analysts polled by Zacks have held full-year 2009 earnings estimates steady at $7.58 per share over the past 3 months. For the following year, the Zacks Consensus Estimate of $9.50 is up a penny from the 3 months-ago level.

Lincoln Educational Services Corporation (LINC – Snapshot Report), which is scheduled to announce fourth-quarter results on Mar 3, is seeing a bullish Zacks Consensus Estimate. Current full-year earnings forecasts of $1.69 per share were increased from $1.47 over the past 3 months. For 2010, estimates of $2.07 climbed from $1.82 over the same time period.

The company posted third-quarter earnings of 50 cents per share more than doubling the year-prior 22 cents and eclipsing the Zacks Consensus Estimate by 35%. Since Oct 2005, Lincoln’s earnings came in below the Zacks Consensus Estimate only once, matched 3 times and exceeded expectations in all the other quarters.

Earnings per share are expected to grow 22% over the next 3 – 5 years, which in line with the industry projections for other education stocks.

Lincoln’s forward P/E of 10 gives it the most attractive valuation among the education stocks covered in this article.

Apollo Group Inc. (APOL – Analyst Report) is scheduled to release its fiscal second-quarter report on Apr 6.

The company recently posted first-quarter earnings of $1.47 per share, beating last year’s $1.12 and outpacing the Zacks Consensus Estimate of $1.45. Since April 2005, Apollo has missed the Zacks Consensus Estimate only 3 times, matched once and surpassed forecasts during all the other quarters.

Unlike the aforementioned education stocks, Apollo has seen a slight decline in the Zacks Consensus Estimate for the current and following fiscal years. However, other fundamentals are attractive, such as its forward P/E of 11.7 and a return on equity (ROE) of 58% with very little debt on the balance sheet.

However, the stock is currently a Zacks #3 Rank (Hold), while the other education stocks discussed in this article hold either a Zacks #1 Rank (Strong Buy) or a Zacks #2 Rank (Buy). Thus, Apollo may be one to watch for a little while, especially since the earnings announcement is a couple months away.

By: RJ Camposagrado

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