DeVry Inc. (DV), an international higher education company, appears to have moved back into growth mode after hitting a rough patch in 2005, thanks to the company's turnaround plan.
One of the largest publicly held, international, higher education companies in North America, DeVry Inc. is the holding company for DeVry University, Ross University, Chamberlain College of Nursing and Becker Professional Review.
DeVry University offers undergraduate and graduate degree programs in technology, business and healthcare technology and graduate degree programs in management. Ross University provides medical and veterinary medical education, while Chamberlain College of Nursing offers associate and bachelor's degree programs in nursing. Becker Professional Review prepares candidates for the Certified Public Accountant and Chartered Financial Analyst professional certification examinations, and offers continuing professional education programs and seminars in accounting and finance.
Barring more established companies like Strayer Education Inc. (STRA), Apollo Group Inc. (APOL) and DeVry, other for-profit education companies, which rely on students' access to private loans, have been hit by the skittishness in the credit markets. For students, getting private loans has become tougher as many student loan providers have withdrawn from providing loans through the Federal Family Education Loan Program or FFELP. Citigroup Inc. (C) HSBC Holdings PLC ADS (HBC), SLM Corp. (SLM), better known as Sallie Mae are some of the big names to have exited from student loan program because of the credit crunch. As of May 1, according to FinAid.org website, which provides information about student loan and financial aid issues, 65 student loan originators had chosen to exit or suspend their participation in all or part of the FFELP since last August.
In order to help U.S. students raise University loans, President Bush signed the "Ensuring Continued Access to Student Loans Act of 2008" on May 7. The passage of the law provides continued availability of access to the Federal student loan program for students and families, increase the loan limits and lessen students' reliance on private student loans.
DeVry Inc., which was created in 1987 through the merger of DeVry Institutes and Keller Graduate School of Management, went public on the New York Stock Exchange in June 1991. The company operates under three reportable segments - DeVry University, Professional & Training and Medical & Healthcare, and derives most of its revenues from tuition charges.
Since the beginning of 2005, DeVry stock has more than tripled compared with an 18% gain by the S&P 500 index during the same time frame. Can DeVry keep the momentum going?
Growth Drivers
1. Turnaround - At an accelerated pace
DeVry, which reported profit growth of over 20% for eight years in a row beginning in 1994, saw its profitability growth erode to 16% in 2002 as enrollment in its programs declined. The following year, the company posted an 8% drop in profits and in 2004 the profits were down by 5% to $58 million. The successive year was no better, and the company's profit slumped to $18 million in 2005 while revenue slipped to $781 million from $784.8 million in 2004. This sudden reversal in fortunes prompted DeVry to implement a turnaround plan in 2005 in order to increase its operational efficiency and better align its workforce resources with the changes in demand for the company's part-time, online, and business-focused programs.
The turnaround plan began to pay off earlier than expected, and DeVry's profits more than doubled in 2006 to $43 million, while revenues grew nearly 8% to $843 million compared to 2005. For the fiscal year ended June 30, 2007, the company's net income surged to $76.2 million or $1.07 per share from $43 million or $0.61 per share in 2006. Revenues for the year advanced to $933 million from $843 million a year before.
For the nine months ended March 30, 2008 the Oakbrook Terrace-based educational firm's net income soared to $100.96 million or $1.40 per share from $60.24 million or $0.85 per share in the year-ago period. Revenues for the nine-month period were $815 million, up 16.3% over the same period a year before.
2. Positive earnings surprises
DeVry's earnings have topped analysts' forecasts for the past five quarters in a row by an average surprise of 28.9%.
3. Upward revision of earnings estimates
Over the past seven days, earnings estimates for the fourth quarter have been revised upwards by 2.7% to $0.38 per share. Earnings estimates for fiscal 2008 have improved by 5.8% to $1.80 per share over the past sixty days.
4. Burgeoning demand
As post-secondary education means higher lifetime earnings, more students are motivated to enroll in post-secondary programs. According to the U.S. Census Bureau, "a person with a bachelor's degree earns almost double what someone with only a high school diploma earns."
Post-secondary education has become essential to achieve success in a knowledge-based economy. It is estimated that 85% of all jobs in the United States currently require education or training beyond high school, up from only 65% as recently as 1991. Additionally, the emergence of e-learning has expanded the accessibility of a post-secondary education.
DeVry University's undergraduate programs accounted for 63% of total revenues in fiscal 2007. Total undergraduate enrollment at DeVry University increased by 9.8% for the 2007 summer term (40,774 students) from the 2006 summer term (37,132 students).
Total enrollment at Ross University for the 2007 September term increased by 4.3% to 3,885 students from the 2006 September term.
Online coursetakers for the 2007 summer term increased an impressive 26% to 36,001 students.
5. Regional accreditation
The degree programs offered by DeVry are fully accredited. The federal government relies on accreditation to assure the quality of institutions and programs for providing federal aid to students. Last year, the U.S. Department of Education provided nearly $83 billion in the form of grants, work-study and low-interest loans as federal aid, which benefited about 10 million students.
According to the National Center for Education Statistics, enrollment for post-secondary education reached a record level of 18.0 million in fall 2007. Between fall 2007 and fall 2016, enrollment is expected to increase by 14%.
6. Reliance on internal financing
At a time when the for-profit higher education sector in general is suffering the fallout from the restriction or cutting back on student loans by private lenders, DeVry continues to coast through the credit-crunch and sub-prime mess in the U.S. In January, Sallie Mae, the nation's leading provider of student loans, announced that it is discontinuing its discount loan program that typically served higher credit risk students. In the first half of fiscal 2008, Sallie Mae's discount loan program comprised approximately $2 million in loan volume for DeVry, which represented less than 1% of DeVry's revenue of $524.1 million.
DeVry has its own loan program, dubbed EDUCARD Plan, which assists students who are unable to completely cover educational costs by other means. EDUCARD proprietary loans are used only for tuition, books, and fees, and are available only after all other student financial assistance has been exhausted. The repayment period of the EDUCARD loan is within 12 to 24 months. The remaining gross receivable balance under the EDUCARD Plan as of June 30, 2007 was approximately $52.9 million, compared to $51.7 million a year before.
7. Low student loan default rates
According to DeVry, over 80% of its U.S. undergraduate students and a similar percentage of the students at the Calgary, Canada campus receive some government-sponsored financial aid. DeVry students have a strong track record in meeting their financial obligations because the company's longer-term degree programs often translate into higher incomes for students, enabling them to meet their financial obligations after graduation.
For 2004, the latest period for which data is available, the default rate was 6.5% for DeVry University, 2.3% for Keller Graduate School of Management, 0.2% for the medical school and 0.4% for the veterinary school of Ross University and 0.7% for Chamberlain College of Nursing.
8. Slowing economy
It is a general trend for college enrollments to increase during economic downturns. As job prospects become scarce in a slowing economy, individuals tend to use that period to advance their education. This bodes well for DeVry, which offers post-secondary education.
9. Healthy acquisitions
DeVry has grown by making strategic acquisitions. The company has embarked on growing aggressively online and diversifying below the Baccalaureate level, as the online high school market is poised for significant growth. According to DeVry, 90% of the degree programs it offers are at the Bachelors, Masters and Doctoral levels and 10% at the Associate degree level.
According to the U.S. Department of Education, enrollment in online high school programs grew by 73% annually from 2000 to 2006. Eduventures, Inc., a provider of higher education research and consulting services, projects that revenue in the online high school market will be $2 billion by 2011, compared to $325 million in 2006.
10. Presence in high-growth market
During fiscal 2007, the DeVry University segment accounted for 78% of the company's total revenues, while the Professional & Training segment made up 7.3% of total revenues and the Medical & Healthcare segment accounted for 14.7% of total revenues. Professional & Training and Medical & Healthcare are the company's fastest-growing segments.
The Professional and Training segment's revenues were $67.9 million in fiscal 2007, reflecting 26.8% growth over the prior year. This segment stands to benefit from the continued demand for accounting and finance professionals.
The Medical and Healthcare segment's revenues grew 24.2% to $137.2 million in fiscal 2007 compared to a year earlier. Over the next decade, the demand for medical education is expected to increase by approximately 30%, spurred by a physician supply/demand imbalance that is projected to grow, according to the Association of American Medical Colleges. Applications to nursing schools continue to be driven by the strong job market for nurses. According to the U.S. Department of Labor, the employment of registered nurses through 2016 is expected to create 587,000 new jobs, representing 23% growth.
11. Strong Balance Sheet
DeVry has a strong cash flow and no debt, reflecting a strong corporate management. The company ended the third quarter of fiscal 2008 with $310 million of cash and short and long-term marketable securities. DeVry's current ratio for fiscal 2007 is 1.32:1, up from 1.07:1 in 2006. Current ratio is a measure of a firm's liquidity and it indicates if a company has enough current assets to meet its short-term financial obligations.
12. Share buyback
DeVry is set to buy back up to $50 million of its common stock through December 31, 2010, following the completion of its $35 million share buyback program, which the company announced in November 2006. The $35 million share repurchase program is the first stock buyback plan in DeVry's history.
Valuation
DeVry's P/E ratio based on the past 12-month earnings is 35.24, compared with Sector average of 23.23.
Risks
1. Shifts in career interest
DeVry offers undergraduate and graduate educational programs only in the fields of technology, healthcare and business. If there are shifts in student career goals, future enrollment at DeVry might decline, eroding the company's revenue.
2. Reduction in the funding of federal financial aid
As DeVry's students are highly dependent on government-funded financial aid programs, any changes to financial aid program regulations that restrict student eligibility or reduce funding levels, could impact DeVry's enrollment and revenue.
3. Student attrition
The post-secondary education market is highly competitive. If competitors offer similar programs as those offered by DeVry at a lower tuition rate, DeVry could become less attractive to prospective students.
Stock Performance
After trading in a range since April 2007, DeVry shares climbed sharply in late October, when it opened up with a gap of about 25% at $50 on strong first quarter fiscal 2007 earnings report. Thereafter, the stock was locked in another trading range between $50 and $60 for the reminder of the year and in January 2008. Although the stock back-filled the gap subsequently, it found support around $40 level. In late April, the stock moved back into its old trading range of $50-$60.
On May 19, Devry shares fell 2.6% to $55.21 after the company announced that its recruiter compensation and evaluation practices are being probed by federal investigators. In early May, the Department of Justice, Civil Division, requested DeVry to voluntarily furnish documents and other information regarding its policies and practices with respect to recruiter compensation and performance evaluation. The request was made in order to examine allegations whether DeVry violated the rules of the U.S. Department of Education that ban compensation to recruiters based on the number of students they enroll.
On a positive note, the stock is currently trading above its 50-day and 200-day moving averages of $52.07 and $47.97, respectively. The key downside support levels apart from their moving averages are around $50.56, $46.32 and $40.01. On the upside, the stock may face difficulty in breaking above a resistance around $60.03, below which it has been confined for the past seven months.
Conclusion
Rising demand for post-secondary education, consistent earnings, regional accreditation, healthy acquisitions and a strong balance sheet act as positive triggers for DeVry's stock. However, a shift in career interests of students, reduction in the funding of federal student financial aid and increasing competition from rivals could negatively impact the stock price.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.