Tech Enhancements And Tactical Acquisitions Propel Future Academic Growth

Key Takeaways

• Strong retention and acquisition strategies at CTU and AIUS drive future revenue growth, reducing costs and enhancing net margins.
  
• Acquisition of the University of St. Augustine and tech investments are expected to diversify revenue and boost long-term earnings.
  
• Declines in revenue and potential integration challenges with new acquisitions, alongside increased marketing costs and regulatory uncertainties, may pressure Perdoceo Education's future financial performance.

Catalysts

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

• Strong student retention and engagement rates at both CTU and AIUS are expected to drive future revenue growth through sustained enrollments and reduced costs associated with student acquisition and support.
  
• The pending acquisition of the University of St. Augustine is expected to be accretive to adjusted operating income beginning in 2025, contributing positively to revenue diversification and earnings growth.
  
• Anticipated double-digit revenue growth for the fourth quarter of 2024 at both academic institutions is supported by organic enrollment growth, which should enhance net margins by leveraging existing operational scale.
  
• Cost efficiencies and general expense reductions are boosting operating income, with further reductions expected as the company continues to rightsize processes, leading to higher net margins.
  
• Investments in technology and AI-based solutions for student support are designed to improve operational efficiency, potentially enhancing net margins and boosting long-term earnings growth through better student experiences and outcomes.

Perdoceo Education Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Perdoceo Education's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.6% today to 23.8% in 3 years time.
• Analysts expect earnings to reach $168.3 million (and earnings per share of $2.42) by about November 2027, up from $136.4 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 14.8x on those 2027 earnings, up from 12.0x today. This future PE is lower than the current PE for the US Consumer Services industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 1.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.26%, as per the Simply Wall St company report.

Perdoceo Education Future Earnings Per Share Growth

Risks

• The company's revenue saw a decline of $10.1 million in the third quarter, primarily due to lag impacts from 2023 operational changes at AIUS and changes within CTU's professional development offerings, which may continue to affect future revenue streams.
  
• Marketing expenditures increased during the quarter, particularly at AIUS as operations returned to normalized levels, which could pressure net margins if these expenses do not lead to proportional increases in enrollment or revenue.
  
• The acquisition of the University of St. Augustine may carry integration challenges or fail to deliver the projected accretive impact on adjusted operating income, influencing future earnings negatively if not executed properly.
  
• Revenue at CTU was lower due to reductions in professional development offerings and fewer revenue days, and although efforts are underway to counteract this, such structural reductions could impair long-term revenue potential.
  
• Regulatory uncertainties and compliance changes from the Department of Education could necessitate operational adjustments that might affect financial performance negatively, impacting revenue and net margins.

Valuation

• The analysts have a consensus price target of $30.0 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 2027, revenues will be $706.7 million, earnings will come to $168.3 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of $24.87, the analyst's price target of $30.0 is 17.1% 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.