The pandemic has led to a significant shift in the formal education structure, switching to online modes from traditional classroom learning. In the United States, post-secondary degree attainment stood at 52% at the end of 2020, much higher than the OECD average of 45%. Furthermore, the global education and training services market is expected to grow at an annualized rate of 9% starting this year, to reach $4.20 trillion by 2023.
Over the past month, Chinese Omnichannel English Language Training (ELT) service provider Meten Holding Group Ltd. (METX) has rallied 109.7%, after its strategic cooperation agreement with AGM Group Holdings Inc. (AGMH), for developing METX’s crypto mining business. However, the gains may be hard to sustain, given METX’s weak fundamentals. For the fiscal second quarter ended June 30, adjusted net loss came in at $11.73 million, while loss from operations stood at $12.01 million. Selling and marketing expenses increased 8.9% year-over-year to $11.95 million. Furthermore, Street expects its EPS to be negative $0.39 for the next year (fiscal 2022).
So, it could be wise to bet on education and training stocks Adtalem Global Education Inc. (ATGE), Universal Technical Institute, Inc. (UTI), and Lincoln Educational Services Corporation (LINC), which are better positioned to cash in on the industry’s growth and outperform METX.
Adtalem Global Education Inc. (ATGE)
ATGE is a worldwide workforce solutions provider. The company operates through the segments of Medical and Healthcare; and Financial Services. The Medical and Healthcare segment operates notable institutions, including Chamberlain University, while the Financial Services segment provides certification and test preparation for accounting and banking.
On October 19, Chamberlain University’s nursing school and Emory Healthcare announced the launch of an initiative that aims to encourage an eligible nurse to pursue a Bachelor of Science in Nursing (BSN) degree. "We are committed to advancing talent-focused solutions that strengthen healthcare organizations and the communities they serve, and we are proud that Emory Healthcare selected Chamberlain to support expanded access to high-quality education for their nurses," said James Bartholomew, ATGE Senior Vice-President, Chamberlain University and Institutional Shared Services.
Earlier in October, Chamberlain University’s Master of Public Health (MPH) degree program received accreditation from the Council on Education for Public Health (CEPH). The accredited program is expected to continue promoting professional mobility and increase employment opportunities for graduates.
For the first fiscal quarter ended September 30, ATGE’s revenue increased 29.9% year-over-year to $348.33 million. Net cash provided by financing activities for the period stood at $515.02 million, registering a substantial increase over its negative year-ago value. Non-GAAP EPS from continuing operations came in at $0.62 for the period.
The consensus EPS estimate of $4.23 for the current year (fiscal 2022) indicates a 41.9% year-over-year increase. Likewise, the consensus revenue estimate for the ongoing year of $1.67 billion reflects an improvement of 50.4% from the prior year. Moreover, ATGE has an impressive surprise earnings history, as it has topped consensus EPS estimates for three out of the trailing four quarters.
The stock has gained 26.1% over the past year and 2.6% intra-day to close yesterday’s trading session at $32.82.
ATGE’s POWR Ratings reflect this promising outlook. The stock has a Growth grade of B. In the 25-stock Outsourcing – Education Services industry, it is ranked #11. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for ATGE (Value, Momentum, Stability, Sentiment, and Quality).
Universal Technical Institute, Inc. (UTI)
UTI is a post-secondary education provider for students aiming for careers in professional automotive, collision repair, and marine technicians. The company provides educational programs under various brands, such as Universal Technical Institute, Marine Mechanics Institute, and NASCAR Technical Institute.
On November 1, UTI announced the completion of its acquisition of MIAT College of Technology, adding campuses in Texas and Michigan and eight new programs. The acquisition is expected to expand the company’s program offerings and realize significant revenue and cost synergies.
In September, the company announced the launch of a BMW FastTrack Elective in its Avondale, Orlando, and Long Beach campuses. The programs set to launch in early 2022 should serve more students and enhance UTI’s relationship with BMW dealerships.
UTI’s revenues increased 53.8% year-over-year to $83.77 million in the fiscal third quarter ended June 30. Adjusted net income came in at $3.32 million, while net income per share stood at $0.03, both up substantially from their negative year-ago values,
Analysts expect EPS to increase 280% year-over-year to $0.19 for the current year (fiscal 2021). Likewise, Street revenue estimate for the ongoing year of $332.96. million indicates a rise of 10.7% from the prior year.
UTI’s stock has gained 48.6% over the past year to close yesterday’s trading session at $7.16. It has gained 10.8% year-to-date.
It's no surprise that UTI has an overall B rating, which equates to Buy in our proprietary rating system. UTI has a B grade for Value and Sentiment. It is ranked #7 in the Outsourcing – Education Services industry.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Quality for UTI, click here.
Lincoln Educational Services Corporation (LINC)
LINC provides career-oriented post-secondary education services catering to school graduates and working adults. The company offers diploma, degree, and certification courses, operating through the segments of Transportation and Skilled Trades; Healthcare and Other Professions; and Transitional.
On November 3, LINC and Republic Services, Inc. announced the launch of a diesel industry training facility in Dallas, Texas, whereby LINC’s faculty will instruct at the Republic Services Training Institute. Scott Shaw, Lincoln Tech’s President, and CEO said, “The national skills gap in the diesel industry is making it incredibly difficult to hire and retain trained, qualified technicians. It’s been Lincoln Tech’s mission to address that skills gap, and we expect that the Republic Services Technical Institute will serve as a model for employers across the country.”
LINC announced on November 2 the completion of its sale and lease-back transactions of its properties in Denver, Colorado, and Grand Prairie, Texas, for an aggregate $46.50 million sale price. LINC simultaneously entered into a 20-year triple-net lease agreement for each of the properties. The net proceeds from the transactions are expected to fund growth initiatives and upgrades of existing facilities.
For the third fiscal quarter ended September 30, LINC’s revenue improved 13% year-over-year to $89.06 million. Operating income increased 49.6% from the prior-year quarter to $5.75 million. Net income and net income per common share went up 9.3% and 37.5% from the same period last year to $3.84 million and $0.11, respectively.
Street EPS estimate for the ongoing quarter (ending December 2021) of $0.50 reflects an improvement of 61.3% from the prior-year quarter. Likewise, Street revenue estimate of $84.20 million for the current quarter indicates a 2.9% year-over-year rise. In addition, LINC has topped Street EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 33.2% over the past year and 11.1% year-to-date to close yesterday’s trading session at $7.22.
LINC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to Strong Buy in our POWR Rating system. LINC also has a Sentiment grade of A, and a Growth, Value, Stability, and Quality grade of B. It is ranked #1 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see the LINC rating for Momentum here.
METX shares were trading at $0.64 per share on Tuesday morning, down $0.01 (-1.43%). Year-to-date, METX has declined -68.00%, versus a 26.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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