Devry Hoping Its Quality Returns It To Growth

In a recent investor presentation, for-profit educator Devry (NYSE:DV) detailed its belief that "quality leads to growth." Namely, this includes high graduation and job placement rates after graduation. Growth trends in the near term have been uneven, but a low valuation leaves plenty of upside, should these trends return closer to historic levels.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Recent Results Recap
On Monday, Devry reported that its fall 2011 enrollment had fallen 5.9% to 122,706 students. New undergraduate students plummeted 24.6% to 13,558 and fell a more dramatic 33% at the Carrington Colleges Group that prepares students for careers in health care. Pockets of strength included a 26.2% jump in total student enrollment at the Chamberlain College of Nursing, though new students dropped 1.6%. Graduate course taker enrollment also advanced a modest 0.3% and includes programs to help professionals pass CPA and CFA exams. (For more on the CFA, see So, You Want To Earn Your CFA?)

This followed a tepid first quarter that saw total revenues fall 0.5% to $519 million. Coupled with a 7.3% increase in operating costs, operating income fell 28.6% to $79.9 million. Lower income tax expense lessened the net income decline to 21.9%, as the bottom line fell to $57.5 million. Share buybacks also helped, as earnings per diluted share fell 19.4% to 83 cents, though the decline was still quite severe.

Outlook
For the full year, analysts currently project a sales decline of 1.8%, total sales of $2.1 billion, and earnings of $3.87 per share, which would mean a year-over-year profit drop of approximately 17.3%.

The Bottom Line
Devry is suffering along with other for-profit educators, including Apollo Group (Nasdaq:APOL), Strayer Education (Nasdaq:STRA), Capella Education (Nasdaq:CPLA) and the Kaplan unit of Washington Post (NYSE:WPO). The industry has been under fire from regulators over the levels of debt students take on to pursue what have been uneven graduation rates, job placement levels and starting salary figures.

Devry should be able to better weather the industry storm given it serves more stable health care markets and does have solid placement rates and starting salaries, estimated at 89% and $43,000, respectively. Its growth rate over the past decade is stellar, as sales have risen in excess of 14% annually and earnings are up more than 19%. The company also has high profits and no long-term debt. Unfortunately, the stock will likely remain dead money until growth trends perk back up, but Devry has as solid a chance as any in the industry. At a forward P/E of 8.6, there is considerable upside for investors who bet its prospects will improve. (For related reading, see How To Use The P/E Ratio And PEG To Tell A Stock's Future.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.