We recently upgraded our recommendation on Capella Education Company (CPLA) to Outperform from Neutral with a target price of $89.00.
Capella’s strong focus towards working adults and exclusive online education has enabled it to establish a healthy position in the for-profit post-secondary education industry. The company’s sustained effort to expand educational programs helps it to boost enrollments, and in turn, the top-line.
The company provides degree programs in business, information technology, education, human services, nursing, psychology, public administration, public health, and public safety. Currently, Capella University offers 39 graduate and undergraduate degree programs with 129 specializations and more than 1,250 online courses.
Higher education sees a countercyclical movement during sluggish economic conditions. Postsecondary enrollments tend to rise as both unemployed and employed workers return to school to reskill themselves and existing students remain in school longer compelled by the intensely competitive job market.
Capella Education Company recently reported stronger-than-expected fourth-quarter 2009 results buoyed by a rise in enrollment. Total active enrollment rose 26.4% year-over-year to 33,982 in fiscal year 2009. Average quarterly enrollment jumped 24.3%.
Due to the surge in enrollment, revenue for the quarter grew 24.8% to $94.5 million. Capella expects revenue to rise in the range of 28% to 30% in first-quarter 2010, and between 24.5% and 26.5% in fiscal year 2010.
The quarterly earnings of 88 cents a share, outstripped the Zacks Consensus Estimate of 85 cents, and grew 33.3% from 66 cents delivered in the prior-year quarter.
Although stiff competition from other online education companies remains a threat, we recommend an Outperform recommendation on the stock, given the company’s strong fundamentals. The company’s debt-free balance sheet and substantial cash reserves bode well for future operating performance.
Read the full analyst report on “CPLA”
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