The education sector is evolving with an increased need for high-quality education and cutting-edge learning solutions. Some education companies look poised for growth. We think quality education stocks Graham Holdings Company (GHC), Adtalem Global Education Inc. (ATGE), and Perdoceo Education Corporation (PRDO) could be worth watching.
Rising income levels, increasing internet penetration, an increase in the number of children under the age of five, a surge in female labor force participation, a rise in government initiatives and educational funding levels, and an increase in the number of merger and acquisition activities all contribute to growth in the U.S. education market.
The education market in the United States is anticipated to reach $2.14 trillion in 2027, growing at a 4.9% CAGR.
Furthermore, the global online education market is expected to reach over $200 billion by 2030, growing at a 23% CAGR. Microlearning growth patterns and a reduction in infrastructure costs are likely to allow the industry to flourish and experience high demand.
Education providers are using the Internet to reach out to rural and urban communities with certifications, courses, and degrees.
Investors’ interest in education stocks is evident from Global X Education ETF (EDUT) 6% returns over the past month.
Let us look deeper into the fundamentals of the featured stocks.
Graham Holdings Company (GHC)
GHC through its subsidiaries, operates as a diversified education and media company in the United States and internationally.
GHC’s forward EV/Sales multiple of 0.80 is 33% lower than the industry average of 1.19. Its forward Price/Sales multiple of 0.68 is 23.2% lower than the industry average of 0.88.
GHC’s trailing-12-month levered FCF margin of 7.47% is 108.3% higher than the industry average of 3.59%. Its trailing-12-month EBIT margin of 9.52% is 29.8% higher than the industry average of 7.33%.
For the fiscal first quarter that ended March 31, 2023, GHC’s operating revenues increased 12.8% year-over-year to $1.03 billion. Its education operating income increased 5.6% year-over-year to $378.04 billion.
Also, its total current liabilities came in at $1.13 billion for the period that ended March 31, 2023, compared to $1.17 million for the period that ended December 31, 2022. Its total assets came in at $2.75 billion, compared to $2.81 billion in the same period.
The consensus revenue estimate of $4.31 billion for the year ending December 2024 represents a 7% increase year-over-year. Its EPS is expected to grow 60.1% year-over-year to $67.25 for the same period. GHC’s shares have gained 3.5% over the past nine months to close the last trading session at $576.92.
GHC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GHC has a B grade for Value, Sentiment, and Stability. It is ranked #6 out of 22 stocks in the B-rated Outsourcing - Education Services industry. Click here for the additional POWR Ratings for Quality, Growth, and Momentum for GHC.
Adtalem Global Education Inc. (ATGE)
ATGE provides workforce solutions worldwide. It operates through three segments, Chamberlain, Walden, and Medical and Veterinary.
ATGE’s forward EV/EBIT multiple of 8.08 is 40.3% lower than the industry average of 13.55. Its forward EV/EBITDA multiple of 6.85 is 29.2% lower than the industry average of 9.67.
ATGE’s trailing-12-month EBITDA margin of 23.93% is 119.6% higher than the industry average of 10.90%. Its trailing-12-month levered FCF margin of 13.44% is 274.5% higher than the industry average of 3.59%.
For the third quarter ended March 31, 2023, ATGE’s revenue increased 1.3% year-over-year to $369.08 million. The company’s operating income increased 80.4% from the prior-year period to $59.43 million. Its income from continuing operations increased significantly year-over-year to $48.56 million. Also, its total EPS came in at $1.00.
Street expects ATGE’s revenue to increase 4.1% year-over-year to $1.44 billion for the year ending June 2023. Its EPS is expected to grow 28.3% year-over-year to $4.16 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 21.9% to close the last trading session at $38.76.
It’s no surprise that ATGE has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated ATGE for Stability, Momentum, and Sentiment. Get all ATGE ratings here.
Perdoceo Education Corporation (PRDO)
PRDO provides postsecondary education through online, campus-based, and blended learning programs in the United States. The company operates in two segments, Colorado Technical University, and The American InterContinental University System.
PRDO’s forward EV/EBIT multiple of 2.90 is 78.6% lower than the industry average of 13.55. Its forward EV/EBITDA multiple of 2.55 is 73.6% lower than the industry average of 9.67.
PRDO’s trailing-12-month levered FCF margin of 15.85% is 341.8% higher than the industry average of 3.59%. Its trailing-12-month net income margin of 13.88% is 224.2% higher than the industry average of 4.28%.
PRDO’s total revenue for the first quarter ended March 31, 2023, increased 6.9% year-over-year to $195.60 million. The company’s adjusted operating income increased 4.3% year-over-year to $53.11 million. Its net income increased 17.6% year-over-year to $34.48 million. Additionally, its adjusted EPS increased 16% year-over-year to $0.58.
Analysts expect PRDO’s revenue to increase marginally year-over-year to $702.81 million for the year ending December 2023. Its EPS is expected to increase 8.6% year-over-year to $1.77 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 24.2% over the past year to close the last trading session at $12.67.
PRDO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Value and Quality and a B for Stability. To see additional PRDO’s ratings for Sentiment, Momentum and Growth, click here.
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GHC shares were trading at $572.75 per share on Friday afternoon, down $4.17 (-0.72%). Year-to-date, GHC has declined -4.70%, versus a 16.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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