DeVry in Neutral Lane - Analyst Blog

We recently reiterated our Neutral recommendation on DeVry Inc. (DV).

DeVry reported an EPS of $1.03 per share for the first quarter of fiscal 2011, beating the Zacks Consensus Estimate of 95 cents. The EPS was also 35.5% up compared to 76 cents in the year-ago period. Revenues were $521 million, up 21% compared with the year-ago quarter, but missed the Zacks Consensus Estimate of $522 billion.

With a market cap of $4 billion, DeVry is a leading provider of post-secondary educational services in North America. Moreover, the company has a rich experience of more than 75 years in the education industry and commands a portfolio of strong brands, including DeVry University and Ross University. This provides a competitive edge to the company and strengthens its well-established position in the market.

DeVry is in the midst of a real estate optimization strategy, which involves evaluation of current facilities and locations in order to achieve an optimal mix of campuses in line with market demand. Actions undertaken by the company include reconfiguring campuses, renegotiating leases, sub-leasing excess space, co-locating with other educational offerings at campuses, and relocating to smaller locations. Consequently, DeVry can expect a steady improvement in profitability from these cost-saving initiatives.

The company has a consistent track record of returning cash to shareholders in the form of regular dividends and share buybacks. During fiscal 2008, 2009 and first quarter of fiscal 2010, DeVry utilized cash reserves of $32.3 million, $43.7 million and $17.4 million respectively, towards share buybacks and payment of dividends. DeVry has a sound long-term debt-free balance sheet, with cash and cash equivalents of $279.2 million at the end of fiscal 2010 first quarter. This offers a financial flexibility to the company to drive future growth.

However, intense competition from public and private colleges and risks associated to regulatory matters as well as government-funded financial aid programs may limit the above-market performance of the company. The company primarily competes with Corinthian College (COCO-Snapshot Report) and ITT Educational (ESI-Analyst Report).