LOPE's Outlook Is Weak But Has Potential

Citigroup has published a research report on Grand Canyon Education, Inc.

after the company reported 3Q EPS below expectations. In the report, Citigroup writes "Q3 Rev/EPS of $99MM/$0.28 was below Street at $102MM/$0.29. Q4 Outlook for Rev/EPS of $105MM/$0.32 at the midpoint was well below the Street at $118MM/$0.43 and below the low-end of previously implied guidance of $115MM/$0.42. For 2011, LOPE established Rev/EPS outlook of $505MM/$1.40 at the midpoint, vs. Street at $525MM/$1.66. Y/Y revenue growth of 50% Y/Y in 3Q10 vs. 55% Y/Y in 2Q10, represented only a modest decel (though aided by 7 point easier comp). The 440 bps Y/Y improvement in operating margin to 22.5% represented another consecutive quarter of operating margin expansion. Enrollment growth of nearly 24% Y/Y represented a material deceleration vs. the 31% Y/Y reported in Q2, and the company was facing an 11-point easier comp." Citigroup maintains its Buy rating and has lowered the price target from $32 to $25. Grand Canyon Education closed yesterday at $18.24.