The education sector is booming with the increased penetration of the Internet in the industry. Moreover, edTech solutions are broadening the horizons of the industry. Therefore, I think investors could consider quality educational stocks Pearson plc (PSO), Adtalem Global Education Inc. (ATGE), Perdoceo Education Corporation (PRDO), and Lincoln Educational Services Corporation (LINC), which are rated an A (Strong Buy) according to our proprietary POWR Ratings system.
The growth of the U.S. education market in the coming years is attributed to factors such as an increasing child population requiring basic education, a shift towards online education due to COVID-19, the popularity of online and e-books, higher enrollment rates in post-secondary education, and breakthroughs in the education system.
As a result, revenue in the U.S. education market is expected to reach $2.04 trillion in 2026, recording growth at a CAGR of 4.8%.
Moreover, edTech solutions are expected to evolve in line with the advances in the latest technologies, such as IoT, AI, and AR/VR, and contribute significantly to the market's growth. Due to the demand for personalized learning, efficient grading, smart content delivery, and intelligent tutoring systems, AI in the education market is set to grow significantly this year.
Also, smart classrooms are propelling the growth of the EdTech market by offering tech-savvy classrooms that use animations, multimedia, audio, video, and graphics to improve teaching and learning processes.
The global education technology market was valued at $123.40 billion in 2022 and is expected to expand at a CAGR of 13.6% from 2023 to 2030.
Let us take a detailed look at the stocks mentioned above:
Pearson plc (PSO)
Headquartered in London, the United Kingdom, PSO offers educational courseware, assessments, and services worldwide. The company operates through five segments: Assessment & Qualifications; Virtual Learning; English Language Learning; Higher Education; and Workforce Skills.
PSO’s forward EV/EBIT multiple of 12.13 is 10.9% lower than the industry average of 13.62. Its forward EV/EBITDA multiple of 8.72 is 9.6% lower than the industry average of 9.65.
On June 26, 2023, PSO launched an AI Summer Reading List, a collection of titles selected to encourage the exploration of artificial intelligence. PSO is a leader in AI publishing, helping students and professionals understand and apply generative AI to learn and advance their careers.
On June 13, PSO announced that GED Testing Service, owned by PSO and the American Council on Education, had teamed up with WithYouWithMe, a social impact tech company, to offer students free access to a cutting-edge learning preference assessment.
This collaboration seeks to assist learners by offering insights into their individual learning styles, enabling them to choose tailored study resources for their GED exam preparation.
PSO’s sales rose 5.1% year-over-year to £1.88 billion ($2.40 billion) in the half-year that ended June 30, 2023. Its adjusted operating profit increased 56% year-over-year to £250 million ($318.59 million), and adjusted EPS increased 13.8% from the previous-year period to 25.6 pence.
PSO’s EPS and revenue are expected to rise 15% and 2.5% year-over-year to $0.71 and $4.74 billion in the current fiscal year 2023.
The stock declined marginally intraday to close the last trading session at $10.34.
PSO’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PSO has an A grade for Growth and a B for Stability and Sentiment. It is ranked #4 among 19 stocks in the A-rated Outsourcing – Education Services industry.
Click here to see the additional POWR Ratings for PSO (Value, Quality, and Momentum).
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 8.38 is 38.1% lower than the industry average of 13.55. Its forward EV/EBITDA multiple of 6.84 is 29.5% lower than the industry average of 9.70.
During the full year that ended June 30, 2023, ATGE’s revenue increased 5% year-over-year to $1.45 billion. The company’s operating income increased 119.1% from the previous year to $168.17 million, while its total operating costs and expenses declined 1.7% year-over-year to $1.82 billion. Also, its total EPS came in at $2.05.
Street expects ATGE’s revenue to increase 2.1% year-over-year to $1.48 billion for the fiscal year ending June 2024. Its EPS is expected to grow 2.5% year-over-year to $4.31 for the same year. It surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.
Shares of ATGE have gained 21.1% year-to-date to close the last trading session at $42.65.
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 3.64 is 73.3% lower than the industry average of 13.62. Its forward EV/EBITDA multiple of 3.24 is 66.5% lower than the industry average of 9.65.
On August 4, PRDO declared an inaugural dividend for the second quarter of $0.11 per share, payable on September 15, 2023. The company pays an annual dividend of $0.44, which translates to a yield of 2.75% on the current market price.
PRDO’s total revenue for the second quarter ended June 30, 2023, increased 11.3% year-over-year to $186.60 million. The company’s adjusted operating income increased 31.5% year-over-year to $55.20 million. Additionally, its adjusted EPS increased 45.2% year-over-year to $0.61.
Analysts expect PRDO’s EPS to increase 25.6 year-over-year to $0.49 in the fiscal third quarter ending September 2023. It surpassed EPS and revenue estimates in all four trailing quarters.
The stock has gained 23.9% over the past month to close the last trading session at $16.13.
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 has an A grade for Quality and a B for Value and Sentiment. It is ranked first in the same industry.
To see additional PRDO’s ratings for Stability, Momentum, and Growth, click here.
Lincoln Educational Services Corporation (LINC)
LINC provides various career-oriented post-secondary education services to high school graduates and working adults in the United States. The company operates in two segments: Transportation and Skilled Trades; and Healthcare and Other Professions.
LINC’s forward EV/Sales and P/B multiples of 0.77 and 1.56 are 34.9% and 38.2% lower than the industry averages of 1.18 and 2.52.
On August 1, LINC announced that it would introduce a Medical Assistant career training program at its Columbia, MD campus later this year. With more than 22,000 positions projected to open in Maryland alone, Medical Assisting graduates will be in demand in various healthcare settings.
During the second quarter, the company repurchased approximately 61,000 shares of its common stock for approximately $0.30 million. Since the adoption of the share repurchase program in May 2022, LINC has repurchased a total of 1.70 million shares of its common stock for a total investment of $10.30 million.
LINC’s revenue increased 7.9% year-over-year to $88.65 million in the fiscal second quarter, which ended June 30, 2023. Its total cost and expenses declined 20.3% year-over-year to $65.13 million. Adjusted net income increased 154.2% year-over-year to $450 thousand.
LINC’s EPS is expected to rise 131.3% year-over-year to $0.83 in the fiscal year 2023. Its revenue is expected to increase 4.8% year-over-year to $365.15 million in the same year. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 50.6% year-to-date to close the last trading session at $8.72.
LINC’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
LINC also has an A grade for Sentiment and a B in Value, Quality, and Stability. It is ranked #3 in the same industry.
In addition to the POWR Ratings stated above, one can access additional ratings for LINC’s Growth and Momentum here.
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PSO shares were unchanged in premarket trading Tuesday. Year-to-date, PSO has declined -5.71%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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