Expanding Programs And Partnerships Will Address Workforce Shortages In Healthcare And Technology

Key Takeaways

• Strategic focus on labor market needs and partnerships is propelling enrollment growth and revenue expansion in healthcare and technology fields.
  
• Successful ABSN program and workforce investments signal strong enrollment growth, revenue diversification, and enhanced profitability.
  
• Regulatory and capacity constraints, declining reentry growth, and legal costs may impact revenue, margins, and cash flow, challenging enrollment and financial stability.

Catalysts

Operates as an education services company in the United States.

• Grand Canyon Education's focus on labor market needs, with 148 new programs across 10 colleges targeting fields like healthcare and technology, is expected to drive enrollment growth and increase revenue.
  
• Strategic partnerships with employers in industries with workforce shortages are expanding, showing a 12.5% increase in new starts. This is anticipated to boost enrollment and, consequently, revenue growth.
  
• The ABSN program's success with younger, low-debt students scaling rapidly will lead to strong enrollment growth, enhancing revenue per student and overall profitability.
  
• Continued investment in workforce development and manufacturing certificate programs signals diversification, potentially increasing revenue streams and expanding earnings.
  
• Share repurchase authorization indicates aggressive buyback plans, potentially reducing shares outstanding and enhancing earnings per share (EPS).

Grand Canyon Education Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grand Canyon Education's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.9% today to 22.3% in 3 years time.
• Analysts expect earnings to reach $273.8 million (and earnings per share of $10.14) by about March 2028, up from $226.2 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 22.5x on those 2028 earnings, up from 20.9x today. This future PE is greater than the current PE for the US Consumer Services industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 3.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Grand Canyon Education Future Earnings Per Share Growth

Risks

• The ongoing need for regulatory approval and capacity constraints at certain hybrid locations could limit enrollment growth, impacting overall revenue and operating margins.
  
• Declining growth rates for reentering students and the increase in graduates may pressure total enrollment growth rates, potentially affecting revenue and earnings forecasts.
  
• The continuing impact of contract modifications and site closures, as well as potential revenue loss from a hybrid partner converting its contract from revenue share to cost-plus agreements, could negatively affect revenue per student and thus overall revenue.
  
• Rising state taxes and additional legal fees from ongoing litigation could increase expenses, potentially impacting net margins and net income.
  
• The reliance on stock repurchase to support share value, made challenging by the significant capital outlay for buybacks, could pressure available cash flow and future earnings.

Valuation

• The analysts have a consensus price target of $203.0 for Grand Canyon Education based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $273.8 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 6.7%.
• Given the current share price of $167.25, the analyst price target of $203.0 is 17.6% higher.
• 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.