Investments And Acquisitions Will Expand Offerings And Improve Operational Efficiencies By 2025

Key Takeaways

• The acquisition and investments in technology are expected to diversify offerings, improve efficiencies, and drive growth in revenue and earnings.
  
• Enhanced retention efforts and strategic capital allocation are likely to sustain enrollment growth and boost shareholder value.
  
• Integration challenges and policy changes could affect Perdoceo's profitability, while regulatory costs and enrollment risks threaten revenue stability and financial outlook.

Catalysts

Provides postsecondary education through online, campus-based, and blended learning programs in the United States.

• The acquisition of the University of St. Augustine for Health Sciences is expected to diversify and expand Perdoceo's offerings in the health sciences field, which should lead to increased revenue and operating income in 2025 and beyond.
  
• Improvements in student retention and engagement, coupled with efficient marketing and admissions strategies, are anticipated to sustain and boost enrollment growth, positively impacting revenue and earnings.
  
• Increased investment in technology and data analytics, along with enhanced student support processes, are expected to improve operational efficiencies, potentially leading to better net margins.
  
• Growth in corporate engagement programs is likely to drive higher enrollments and retention, favorably influencing both revenue and earnings.
  
• The capital allocation strategy, including dividends and stock buybacks, suggests a focus on increasing shareholder value, which could positively affect earnings per share (EPS).

Perdoceo Education Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Perdoceo Education's revenue will grow by 12.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.7% today to 17.8% in 3 years time.
• Analysts expect earnings to reach $171.6 million (and earnings per share of $2.48) by about March 2028, up from $147.6 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 16.4x on those 2028 earnings, up from 10.8x today. This future PE is lower than the current PE for the US Consumer Services industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Perdoceo Education Future Earnings Per Share Growth

Risks

• The acquisition of the University of St. Augustine for Health Sciences may bring integration challenges and additional expenses that could impact net margins and profitability.
  
• Changes in federal student aid initiatives, especially those ending or changing in 2025, could negatively affect student enrollments and thus reduce revenue.
  
• Increased regulatory oversight from federal and state bodies, especially under the new presidential administration, may impose stricter operational constraints which could increase compliance costs and reduce net income.
  
• The expected continuation of strong student retention and interest is based on assumptions that may not hold, leading to potential declines in enrollment and revenue.
  
• Dependence on the success of corporate engagement programs requires ongoing investments that may not yield proportional increases in revenue or earnings if the initiatives fail to attract and retain students.

Valuation

• The analysts have a consensus price target of $35.0 for Perdoceo 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 $964.4 million, earnings will come to $171.6 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 6.8%.
• Given the current share price of $24.28, the analyst price target of $35.0 is 30.6% 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.