Grand Canyon Education Beats on Q1 Earnings & Rev - Analyst Blog

Grand Canyon Education Inc.'s LOPE first-quarter 2014 earnings of 56 cents a share beat the Zacks Consensus Estimate and the company's expectation of 51 cents by 9.8%. Earnings climbed 21.7% year over year due to solid revenue growth, strong operating margins and lower taxes.

Revenues and Enrollments in Detail

Quarterly revenues of $167.4 million beat the Zacks Consensus Estimate and the company's expectation of $165 million by 1.5%. Revenues increased 17.9% from the year-ago levels due to a solid increase in total enrollment.

Total enrollment rose 15.0% from the prior-year quarter to 61,601 students, as both ground enrollment and online enrollment increased in double digits. Total enrollment exceeded the company's expectation of 60,200 students. Ground enrollment rose 32.3% whereas online enrollment increased 12.3% in the quarter.  New enrollment grew in low double digits.

The company has been witnessing strong enrollment growth on the back of low tuition cost, full time faculty, small class size and efficient service oriented counseling teams. The company's career oriented programs have a steady demand among students.

Grand Canyon Education reported a 17.6% increase in graduate degree enrollment to 23,770. Undergraduate enrollment increased 13.5% to 37,831.

Costs and Margins

Adjusted operating margin increased 220 basis points (bps) to 25.9% due to disciplined cost management and lower bad debt expenses.

Instructional cost of services of $70.7 million in the first quarter of 2014 increased 17.8% year over year due to increased number of faculty members to support higher enrollment at the university. As a percentage of revenue, instructional cost of services remained flat year over year at 42.2%. As a percentage of revenue, bad debt expense of 2.3% declined 120 basis points.  

2014 Outlook

The company has updated its guidance in order to incorporate the differences between the start and end date of the spring semester.

For second quarter 2014, the company expects net revenue of $155.5 million versus the prior expectation of $154.5 million; operating margin of 22.7% instead of 22.5% expected previously; earnings per share of 44 cents versus 43 cents estimated previously and student count of 56,500 versus the prior expectation of 55,700.

For third quarter 2014, management projects net revenue to be $167.7 million, slightly up from $167.5 million expected previously; operating margin of 24.7%, earnings per share of 52 cents instead of 51 cents, and student count of 67,000 instead of 66,400 expected earlier.

For fourth quarter 2014, the company expects net revenue of $181.6 million instead of $181.0 million guided previously; operating margin of 27.8% instead of 27.5%, earnings per share of 63 cents instead of 62 cents and student count of 66,700 instead of 66,200 anticipated previously.

For full year 2014, the company expects net revenue of $672.2 million, operating margin of 25.4% and earnings per share of $2.15.

Grand Canyon Education has all the approvals required to introduce degree programs on information technology and computer science in the fall of 2014. The company intends to introduce degree programs in electrical, biomedical and mechanical and expand its online campus by 6% to 8% per year. The company also intends to introduce the East Valley campus in the fall of 2015.

Grand Canyon Education currently carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the education sector include DeVry Education Group Inc. DV, K12, Inc. LRN and TAL Education Group XRS. All the companies carry a Zacks Rank #2 (Buy).