DeVry (DV) navigates through headwinds in the for-profit higher-education sector by generating incremental cost savings in a hope to regain some its share price after a massive loss in 2011, says Daniel G. Lysik, Founder and Managing Director of Pratt Capital, LLC.
“The stock price fell to $20 from a high near $70 back in the beginning of 2011,” Lysik said. “Like everyone in the industry, recent enrollment trends have been hurt by becoming less dependent on third-party channels and cyclically weak demand due to the economy and weakening consumer sentiment toward higher education. To help offset enrollment challenges, DeVry has focused on generating incremental cost-savings, which could add close to $1 per share in earnings over the next two years.”
Lysik believes that as enrollment improves over the next couple of years, DV could generate $4 per share of normalized earnings, and with the company’s pristine balance sheet, DeVry is geared up to be a solid long-term value opportunity.
“At time of purchase, DeVry’s market price, ex-cash, was approximately four times normalized earnings and a normalized earnings free cash flow yield of 25%. Even if it took three to five years for DeVry’s share price to reach its intrinsic value of more than $40, in our opinion, purchasing shares at $20 provided a very attractive holding period return,” Lysik said.
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