Why Is Adtalem (ATGE) Down 13.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Adtalem Global Education (ATGE). Shares have lost about 13.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Adtalem due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Adtalem's Q2 Earnings & Revenues Surpass Estimates

Adtalem Global Education Inc. reported second-quarter fiscal 2020 results, with the top and the bottom lines beating the Zacks Consensus Estimate.

In the quarter under review, the company reported adjusted earnings of 57 cents per share, which topped the consensus mark of 54 cents by 5.6%. Earnings, however, remained flat year over year. Higher investments in marketing and student recruitment to boost enrollments and revenues have negatively impacted operating income as well as profits. However, growth of the RN to BSN program helped the company to offset the negatives.

Revenues & Operating Discussion

Revenues of $266.2 million topped the consensus mark of $262 million by 1.6%. The figure also increased 4.8% year over year. During the fiscal second quarter, enrollment of new and total students grew 2.6% and 0.3% year over year, respectively.

Adjusted operating income from continuing operations of $42.3 million declined 9.4% year over year.

Segment Details

Medical and Healthcare: Revenues in the segment rose 3.6% from the year-ago figure to $220.2 million. Chamberlain University’s revenues increased 2.7% year over year.

In the fiscal second quarter, new and total student enrollment increased 3.6% and 1.2% year over year, respectively, in Chamberlain. The upside was mainly driven by improved marketing and recruiting programs, mainly RN to BSN strategic partnerships, and the successful first class at its new San Antonio campus.

Medical and Veterinary schools’ revenues grew 4.8% year over year. Adjusted operating income during the quarter was $41.6 million, down 12.5% from the prior-year level. The decline was caused by elevated marketing-related expenses, increase in bad debt reserve and higher corporate allocation costs.

Financial Services: Revenues in the segment totaled $46 million, up 9.1% year over year. Revenues at Becker decreased 3.4% year over year and that of Association of Anti-Money Laundering Specialists dropped 9.9% from the year-ago quarter. Adjusted operating income declined 41% from the prior-year quarter to $5.7 million.

Liquidity & Cash Flow

As of Dec 31, 2019, Adtalem had cash and cash equivalents of $67.3 million compared with $208.3 million in the corresponding period of 2018. In the first six months of fiscal 2020, cash used in operating activities totaled $13.7 million compared with $23 million of cash provided by operating activities in the comparable year-ago period.

Fiscal 2020 View

Total revenues are projected to increase 5-7% year over year. Moreover, adjusted earnings per share are anticipated to rise 7-9% on a year-over-year basis. Capital spending is expected in the range of $45-$50 million. Effective income tax rate for the fiscal year is expected in the range of 19-20%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.42% due to these changes.

VGM Scores

Currently, Adtalem has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Adtalem has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.