Opening New Health Sciences Schools In Mexico And Peru Could Diversify Offerings Despite Economic Risks

Key Takeaways

• Expansion into health sciences and new campuses in Mexico and Peru aims to boost revenue and market presence in high-demand academic fields.
  
• Strong local currency revenue growth and margin expansion efforts may drive earnings growth, despite currency challenges.
  
• Currency volatility, economic uncertainties, and strategic initiatives pose risks to Laureate's revenue growth and net margins in Mexico and Peru.

Catalysts

Offers higher education programs and services to students through a network of universities and higher education institutions.

• Laureate Education is expanding its health sciences portfolio and academic offerings by opening new medical, dental, and veterinary schools in Mexico and Peru, suggesting potential increased revenue from these high-demand fields.
  
• The company is planning to build and open new campuses for its value brands in 2025, which marks the first new campus launches since 2019, projecting to boost revenue and market presence in its local markets.
  
• Continued investment in digital education is anticipated to enhance enrollment growth and revenue in Mexico and Peru by tapping into the growing demand for online learning.
  
• Economic recovery in Peru, with GDP growth expectations of around 3% in 2025, and favorable macroeconomic conditions could lead to increased enrollment and revenue growth.
  
• Despite currency translation headwinds, the company is projecting growth in both adjusted EBITDA and free cash flow due to robust local currency revenue growth and continued margin expansion efforts, which may positively affect earnings.

Laureate Education Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Laureate Education's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.9% today to 17.1% in 3 years time.
• Analysts expect earnings to reach $319.0 million (and earnings per share of $1.53) by about March 2028, up from $295.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the US Consumer Services industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 2.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Laureate Education Future Earnings Per Share Growth

Risks

• The Mexican peso's volatility and weakening against the U.S. dollar pose a risk of foreign currency translation impacts, potentially leading to flat or slightly decreased reported revenues in 2025, affecting overall revenue growth.
  
• Economic uncertainties in Mexico, such as potential geopolitical and trade tensions, could slow GDP growth and impact consumer discretionary spending, affecting enrollment and revenue projections.
  
• The onetime revenue loss from campus consolidation initiatives in Mexico is expected to have an approximately 1% negative impact on year-over-year revenue growth in 2025.
  
• In Peru, increased levels of bad debt provisioning due to softer macroeconomic conditions and higher marketing expenses could potentially affect net margins and profitability.
  
• The company anticipates a tax rate run rate of below 40%, but any significant deviations or adjustments, such as discrete tax items, can impact net income and earnings per share calculations.

Valuation

• The analysts have a consensus price target of $22.833 for Laureate Education based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $19.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $319.0 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $19.16, the analyst price target of $22.83 is 16.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.