Monday, Credit Suisse downgraded K12, Inc. (LRN) shares to Neutral from Outperform with a price target of $20.
Analyst Flynn thinks K12's value proposition to states/students is stellar and that its secular growth prospects are strong. The analyst credit K12 with delivering strong second quarter results and delivering strong revenue and earnings growth in firs half of 2010 despite a tough state budget backdrop.
The analyst is more comfortable with his fiscal 2010 estimates following earnings release and fiscal 2010 guidance reiteration. However, the analyst is not able to justify increasing his price target. The analyst remains concerned that ongoing state budget pressures could weigh on fiscal 2011 revenue-per-student and margins, and is therefore not comfortable raising his out-year estimates.
The analyst believes shares lack an intermediate term catalyst, given that management likely will not be able to provide much color on fiscal 2011 enrollment or revenue-per-student expectations until September. The analyst's price target implies what he believes is a reasonable 31x multiple on $0.64 calendar 2010 EPS given that he model a ~25% 2-3 year EPS CAGR.
Currently, LRN is down $0.11 or 0.57% and trading at $19.09.
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