Will Capella Education (CPLA) Surprise on Earnings? - Analyst Blog

Capella Education Company CPLA is set to report its first-quarter 2014 results on Apr 29 before the market opens. Last quarter, it reported 3.95% positive surprise. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

For first quarter 2014, Capella Education expects new enrollments to increase slightly year over year. However, total enrollment is expected to dip 1.5% to 2.5% in the quarter owing to weak student starts in the prior quarter and quarterly variations in re-registrations.

The company has been witnessing fluctuating enrollment trends in the last few quarters, which in turn dampened total enrollments, revenues, cash flow and profitability. This trend is expected to continue in the upcoming quarter. In fact, revenues are expected to remain flat to down 1.0% year over year in the quarter. Operating margin is expected in the range of 14% to 15% for the first quarter, lower than 15.8% in fourth quarter 2013.

However, owing to Capella's relationship and brand-driven marketing strategy and initiatives to improve learner success rates, total enrollment growth is expected to turn positive in the latter half of 2014. The company expects to achieve moderate new enrollment growth and operating margin improvement in 2014.

Earnings Whisper?

Our proven model does not conclusively show that Capella Education is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  Capella's Earnings ESP is 0.00%.  

Zacks Rank: Capella Education carries a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:  

DeVry Education Group Inc. DV, with Earnings ESP of +14.06% and a Zacks Rank #2 (Buy).

Royal Caribbean Cruises Ltd. RCL, with Earnings ESP of +1.92% and a Zacks Rank #2.

Fastenal Co. FAST, with Earnings ESP of +2.27% and a Zacks Rank #3.