With schools across the U.S. beginning or about to begin, the education sector will likely receive solid investor attention. The education sector is experiencing strong growth due to increased Internet integration and EdTech solutions' expansion. These innovations offer education companies opportunities for substantial growth.
Considering these factors, it could be prudent to consider investing in fundamentally strong education stocks Pearson plc (PSO), Adtalem Global Education Inc. (ATGE), Perdoceo Education Corporation (PRDO), and Lincoln Educational Services Corporation (LINC).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the education industry is well-positioned for growth.
The COVID-19 pandemic significantly impacted the education industry. However, it became a blessing in disguise as it accelerated the shift towards online education and the expansion of EdTech platforms.
EdTech enriches the learning experience with digital tools, dismantling barriers and facilitating online learning through eBooks. Smart classrooms amplify the potential of EdTech by incorporating animations, multimedia, and other elements to enhance the quality of teaching and learning. The online education sector is expected to grow by $148.22 billion between 2022 and 2027, exhibiting a CAGR of 9.5%.
This transformation, coupled with factors like a growing child population, the popularity of e-books, personalized learning, increased post-secondary enrollment, and advancements in the education system, are likely to collectively contribute to the rapid growth of the U.S. education industry in the long term.
The U.S. education market is projected to reach a value of $2.04 trillion by 2026, growing at a CAGR of 4.82%. Furthermore, the emergence of artificial intelligence (AI) has presented educators with new opportunities to engage with students in innovative ways.
For example, generative AI can enhance learning by better understanding students' requirements, preferences, and learning patterns through the analysis of extensive data volumes.
Let's take a closer look at their fundamentals.
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.
On March 23, 2023, PSO announced the acquisition of PDRI, a workforce assessment provider specialized in the U.S. federal government sector. This move expands PSO's offerings, strengthens its presence with major employers, and aligns with its growth strategy. The acquisition is expected to enhance growth and margins for PSO's Assessment & Qualifications division.
On June 13, 2023, PSO announced a collaboration wherein GED Testing Service, a subsidiary of PSO and the American Council on Education, joined forces with WithYouWithMe, a technology company focused on social impact. This strategic partnership aims to help students tailor their GED exam preparation with customized study resources based on their learning styles.
In terms of the trailing-12-month levered FCF margin, PSO’s 18.90% is 292.6% higher than the 4.81% industry average. Likewise, its 48.04% trailing-12-month gross profit margin is 35.7% higher than the 35.41% industry average. Furthermore, its 11.98% trailing-12-month EBIT margin is 63.5% higher than the 7.33% industry average.
PSO’s sales for fiscal six months ended June 30, 2023, rose 5.1% year-over-year to £1.88 billion ($2.40 billion). Its adjusted operating profit increased 56% year-over-year to £250 million ($318.85 million). Additionally, its adjusted EPS rose 13.8% year-over-year to 25.6p.
Street expects PSO’s EPS and revenues for the fiscal year ending December 31, 2023, to increase 15% and 2.5% year-over-year to $0.71 and $4.74 billion, respectively. Over the past three months, the stock has gained 2.3% to close the last trading session at $10.45.
PSO’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 20 stocks in the A-rated Outsourcing – Education Services industry. It has an A grade for Growth and a B for Momentum, Stability, and Sentiment. Click here to see the additional POWR Ratings for PSO (Value and Quality).
Adtalem Global Education Inc. (ATGE)
ATGE provides workforce solutions worldwide. It operates through three segments: Chamberlain; Walden; and Medical and Veterinary.
In terms of the trailing-12-month gross profit margin, ATGE’s 55.30% is 56.2% higher than the 35.41% industry average. Likewise, its 17.88% trailing-12-month levered FCF margin is 271.4% higher than the 4.81% industry average. Additionally, its 22% trailing-12-month EBITDA margin is 104.3% higher than the industry average of 10.77%.
For the fiscal year ended June 30, 2023, ATGE’s revenue rose 5% year-over-year to $1.45 billion. Its adjusted operating income rose 7.5% year-over-year to $287.57 million. The company’s adjusted net income increased 26.4% year-over-year to $192.20 million.
Additionally, its adjusted earnings per share came in at $4.21, representing an increase of 35.4% year-over-year. Moreover, its adjusted EBITDA for the period increased 4.5% year-over-year to $343.44 million.
For the quarter ending March 31, 2024, ATGE’s EPS is expected to increase 2.4% year-over-year to $1.16. Its revenue for the quarter ending September 30, 2023, is expected to increase 0.8% year-over-year to $357.30 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 20.1% 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, Momentum, and Quality. It is ranked #2 in the same industry. Beyond what is stated above, we’ve also rated ATGE for Stability 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.
In terms of the trailing-12-month EBITDA margin, PRDO’s 22.98% is 113.4% higher than the 10.77% industry average. Likewise, its 84.29% trailing-12-month gross profit margin is 138% higher than the 35.41% industry average. Additionally, its 19.85% trailing-12-month levered FCF margin is 312.2% higher than the industry average of 4.81%.
PRDO’s total revenues for the second quarter ended June 30, 2023, increased 11.3% year-over-year to $186.56 million. Its adjusted operating income rose 31.5% year-over-year to $55.17 million. The company’s net income rose 112.2% year-over-year to $54.67 million. In addition, its adjusted EPS increased 45.2% year-over-year to $0.61.
Analysts expect PRDO’s EPS for the quarter ending September 30, 2023 to increase 25.6% year-over-year to $0.49. Its revenue for fiscal 2023 is expected to increase 1.1% year-over-year to $702.81 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 30.9% to close the last trading session at $16.10.
PRDO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value, Momentum, and Sentiment. It is ranked first in the Outsourcing – Education Services industry. To see the additional POWR Ratings of PRDO’s for Growth and Stability, click here.
Lincoln Educational Services Corporation (LINC)
LINC provides 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.
On August 1st, LINC announced its plan to introduce a Medical Assistant career training program at its Columbia, MD campus later this year. This initiative is crucial, as the healthcare industry anticipates over 22,000 job openings in Maryland alone. Graduates from the Medical Assisting program will be in high demand across diverse healthcare settings.
In terms of the trailing-12-month gross profit margin, LINC’s 57.15% is 61.4% higher than the 35.41% industry average. Likewise, its 8.13% trailing-12-month net income margin is 94.7% higher than the 4.18% industry average. Additionally, its 1.20x trailing-12-month asset turnover ratio is 20.8% higher than the industry average of 1x.
For the fiscal second quarter ended June 30, 2023, LINC’s revenues increased 7.9% year-over-year to $88.65 million. The company’s adjusted net income increased 154.2% year-over-year to $450 thousand. In addition, its net income per share came in at $0.57. Also, its adjusted EBITDA rose 6.2% year-over-year to $2.44 million.
LINC’s revenue for the quarter ending September 30, 2023 is expected to increase 3.4% year-over-year to $94.89 million. Its EPS for fiscal 2023 is expected to increase 131.3% year-over-year to $0.83. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 50.8% year-to-date to close the last trading session at $8.73.
LINC’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value, Momentum, Stability, and Quality. Within the same industry, it is ranked #3. In total, we rate LINC on eight different levels. Beyond what we stated above, we also have given LINC grades for Growth. Get all the LINC’s ratings here.
43 Year Investment Pro Shares Top Picks
Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…
Steve Reitmeister’s Trading Plan & Top Picks >
PSO shares were trading at $10.57 per share on Wednesday afternoon, up $0.12 (+1.15%). Year-to-date, PSO has declined -3.61%, versus a 16.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
Top 4 Education Stocks to Own as School Begins StockNews.com
