Barrington Sees K12 Q4 EPS To Drop 33.3%

Barrington Research expects a 33.3 percent drop in
K12 Inc.
's fourth-quarter EPS despite being positive on its settlement with the CAG.

Analyst Alexander Paris projects the fourth-quarter EPS of the technology-based education company at $0.12, down 33.3 percent from $0.18 last year. Paris forecast fourth-quarter revenue to drop 10.9 percent from last year to $210 million.

The FactSet consensus calls for revenue of $210.1 million (-10.8 percent year-over-year) and EPS of $0.13 (-27.8 percent year-over-year). The company expects fourth-quarter revenue of $205 million–$215 million.

"Our estimates exclude the CAG settlement charges, which will be taken in Q4/16," Paris wrote in a note.

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For the full fiscal year, the company's guidance calls for revenues between $830 million and $865 million, compared to $948.3 million in fiscal year '15. K12 also expects full-year operating income in a range of $17 million–$23 million, compared to operating income of $43.7 million in fiscal year '15. The analyst said midpoint of guidance suggests EPS of approximately $0.31.

Meanwhile, K12 shares are trading higher after its $2.5 million settlement with the State of California, concluding a lengthy investigation of the company by the office of California Attorney General (CAG) Kamala Harris. In addition, K12 has agreed to pay $6.0 million toward the restitution of the Attorney General's investigative costs.

"We view the settlement with the CAG (its only significant outstanding legal issue) as a positive (putting it behind the company and saving it significant sums that would have arisen in continued litigation). We also are encouraged by the expansion of the management contract with Agora, which was at one time its largest contract," Paris noted.

Paris, however, maintained his Market Perform rating on the stock, as he awaits the next major data point (fall enrollment) before reconsidering the rating.

At the time of writing, shares of K12 were up 4.72 percent on the day, trading at $13.75.

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