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3 Top Schools Stocks Ready to Soar With Industry Growth
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The U.S. education industry has experienced multifaceted growth, driven by the rising popularity of e-books, the expansion of online learning, increasing demand for healthcare professionals, the launch of new technologies, the implementation of hybrid teaching platforms, and strategic acquisitions aimed at global reach. However, companies in the Zacks Schools industry are grappling with challenges such as increased advertising and marketing expenses and the costs associated with online education. Additionally, the rise of generative artificial intelligence (AI) poses a significant threat.
Despite these hurdles, players in the industry, such as Grand Canyon Education, Inc. (LOPE - Free Report) , Stride, Inc. (LRN - Free Report) , and Lincoln Educational Services Corporation (LINC - Free Report) , are expected to benefit from innovative product offerings, particularly those incorporating AI and game-based learning, alongside prudent cost management and a focus on profitability. For-profit education companies are also forming partnerships with corporations and community colleges to enhance workforce education.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice. The industry players also offer child-care services and career-oriented post-secondary courses. Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conducting workshops and teacher training programs.
3 Trends Shaping the Future of the School Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping the benefits of the rise in the virtual delivery of education. Many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned with the help of various online education platforms. Also, classroom-type-education-providing companies are cashing in on the unprecedented surge in demand for online education. The industry players have been focusing on non-traditional education models and innovative teaching platforms to improve efficiency, enhance student experiences, and support expansion through new campuses and program replication.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: To boost profitability, school companies are resorting to aggressive cost-cutting through significant layoffs, campus closings and consolidations. Developments such as switching to online education programs, increasing use of technology in education, more investments in education and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in diversified platforms, non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI Systems: The Federal Reserve’s hawkish stance, comprising a series of rate increases to combat inflation, made a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, the industry is reeling under challenges like inflation and stagnant traditional campus enrollment growth, given the rising demand for online education platforms and remote learning options. Again, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting the companies’ placements and persistence. Additionally, the slowdown may compel students to default on their loans, which could increase institutions’ student loan cohort default rates, ultimately bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is a 15-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #56, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since July 2024, the industry’s earnings estimates for 2024 have increased to $1.10 per share from $1.09 per share.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms the Sector, Lags the S&P 500
The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 Composite over the past year.
The stocks in this industry have collectively rallied 13.9% compared with the broader sector’s rise of 4.7%. Meanwhile, the S&P 500 has increased 19.9% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 18.5X versus the S&P 500’s 20.7X and the sector’s 16.8X.
Over the past five years, the industry has traded as high as 88.7X, as low as 14.4X and at a median of 27.1X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Stride: This is a Reston, VA-based technology-based education company. The company has been gaining from higher enrollment, expanding product offerings and Middle - High School learning growth. Consistent demand for online learning options has been benefiting Stride’s top line in recent times. Investments focused on improving user experience, enhancing teacher tools and strengthening student engagement also bode well. Its businesses pursue strategic, disciplined acquisitions also drive growth. Stride's new tutoring service gained acceptance across multiple states. This, along with other innovative offerings, especially those involving AI and game-based learning, positions the company for further diversification and potential revenue growth in the near future.
Stride stock has gained 79.5% over the past year. LRN has seen an upward estimate revision for fiscal 2025 earnings to $5.05 per share from $5.02 over the past 60 days. The company’s earnings for fiscal 2025 are expected to grow 7.7%. The expected EPS growth rate for three to five years is 20%. Its earnings topped consensus estimate in each of the trailing four quarters, with the average surprise being 40.3%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: LRN
Grand Canyon Education: This Phoenix, AZ-based company is an education services provider to colleges and universities in the United States and has developed key technological solutions, infrastructure and operational processes to deliver superior services in these areas on a large scale. The company has been benefiting from online, as well as hybrid enrollment growth. The online platform continues to perform well, attributed to the introduction of 148 new programs, many of which address current labor market needs such as healthcare and cybersecurity. Again, the company is building 80 hybrid locations for healthcare-related programs, with plans to invest $240 million, allowing it to accommodate 50,000 students. Despite the general decline in university enrollments nationwide, LOPE is expanding due to its innovative delivery models that cater to diverse student needs. It benefits from low tuition increases (averaging 1% annually since 2018) and affordable hybrid learning options.
Grand Canyon stock has gained 21.6% over the past year. LOPE has seen an upward estimate revision for 2024 earnings to $7.98 per share from $7.80 over the past 60 days. This company’s earnings for 2024 are expected to register 13.4% growth from a year ago. Again, it carries an impressive VGM Score of B. Its earnings topped consensus estimate in all the trailing four quarters, with the average surprise being 10.2%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%.
Price and Consensus: LOPE
Lincoln Educational Services: Based in Parsippany, NJ, this company provides various career-oriented post-secondary education services to high school graduates and working adults in the United States. The company has been gaining from transformational growth strategies, which align with rising public interest in alternative education pathways and employer demand for skilled labor amid a workforce skills gap. Strategic expansions, corporate partnerships, and the innovative Lincoln 10.0 platform are driving positive momentum. The company remains well-positioned for long-term growth, with a focus on addressing the nation’s growing demand for skilled trade professionals.
Lincoln stock has gained 33.4% over the past year. LINC has seen an upward estimate revision for 2024 earnings to 51 cents per share from 48 cents over the past 30 days. This company’s earnings for 2024 are expected to register 4.1% growth from a year ago. Again, it carries an impressive VGM Score of A. Its earnings topped consensus estimate in all the trailing four quarters, with the average surprise being 249.4%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%.
Price and Consensus: LINC
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3 Top Schools Stocks Ready to Soar With Industry Growth
The U.S. education industry has experienced multifaceted growth, driven by the rising popularity of e-books, the expansion of online learning, increasing demand for healthcare professionals, the launch of new technologies, the implementation of hybrid teaching platforms, and strategic acquisitions aimed at global reach. However, companies in the Zacks Schools industry are grappling with challenges such as increased advertising and marketing expenses and the costs associated with online education. Additionally, the rise of generative artificial intelligence (AI) poses a significant threat.
Despite these hurdles, players in the industry, such as Grand Canyon Education, Inc. (LOPE - Free Report) , Stride, Inc. (LRN - Free Report) , and Lincoln Educational Services Corporation (LINC - Free Report) , are expected to benefit from innovative product offerings, particularly those incorporating AI and game-based learning, alongside prudent cost management and a focus on profitability. For-profit education companies are also forming partnerships with corporations and community colleges to enhance workforce education.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity as well as criminal justice. The industry players also offer child-care services and career-oriented post-secondary courses. Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conducting workshops and teacher training programs.
3 Trends Shaping the Future of the School Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping the benefits of the rise in the virtual delivery of education. Many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned with the help of various online education platforms. Also, classroom-type-education-providing companies are cashing in on the unprecedented surge in demand for online education. The industry players have been focusing on non-traditional education models and innovative teaching platforms to improve efficiency, enhance student experiences, and support expansion through new campuses and program replication.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and further exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: To boost profitability, school companies are resorting to aggressive cost-cutting through significant layoffs, campus closings and consolidations. Developments such as switching to online education programs, increasing use of technology in education, more investments in education and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in diversified platforms, non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI Systems: The Federal Reserve’s hawkish stance, comprising a series of rate increases to combat inflation, made a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Importantly, generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, the industry is reeling under challenges like inflation and stagnant traditional campus enrollment growth, given the rising demand for online education platforms and remote learning options. Again, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting the companies’ placements and persistence. Additionally, the slowdown may compel students to default on their loans, which could increase institutions’ student loan cohort default rates, ultimately bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is a 15-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #56, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since July 2024, the industry’s earnings estimates for 2024 have increased to $1.10 per share from $1.09 per share.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms the Sector, Lags the S&P 500
The Zacks Schools industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 Composite over the past year.
The stocks in this industry have collectively rallied 13.9% compared with the broader sector’s rise of 4.7%. Meanwhile, the S&P 500 has increased 19.9% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 18.5X versus the S&P 500’s 20.7X and the sector’s 16.8X.
Over the past five years, the industry has traded as high as 88.7X, as low as 14.4X and at a median of 27.1X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 School Stocks to Buy Now
Below, we have discussed three stocks from the industry that currently have a Zacks Rank #2 (Buy) and have solid growth potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stride: This is a Reston, VA-based technology-based education company. The company has been gaining from higher enrollment, expanding product offerings and Middle - High School learning growth. Consistent demand for online learning options has been benefiting Stride’s top line in recent times. Investments focused on improving user experience, enhancing teacher tools and strengthening student engagement also bode well. Its businesses pursue strategic, disciplined acquisitions also drive growth. Stride's new tutoring service gained acceptance across multiple states. This, along with other innovative offerings, especially those involving AI and game-based learning, positions the company for further diversification and potential revenue growth in the near future.
Stride stock has gained 79.5% over the past year. LRN has seen an upward estimate revision for fiscal 2025 earnings to $5.05 per share from $5.02 over the past 60 days. The company’s earnings for fiscal 2025 are expected to grow 7.7%. The expected EPS growth rate for three to five years is 20%. Its earnings topped consensus estimate in each of the trailing four quarters, with the average surprise being 40.3%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: LRN
Grand Canyon Education: This Phoenix, AZ-based company is an education services provider to colleges and universities in the United States and has developed key technological solutions, infrastructure and operational processes to deliver superior services in these areas on a large scale. The company has been benefiting from online, as well as hybrid enrollment growth. The online platform continues to perform well, attributed to the introduction of 148 new programs, many of which address current labor market needs such as healthcare and cybersecurity. Again, the company is building 80 hybrid locations for healthcare-related programs, with plans to invest $240 million, allowing it to accommodate 50,000 students. Despite the general decline in university enrollments nationwide, LOPE is expanding due to its innovative delivery models that cater to diverse student needs. It benefits from low tuition increases (averaging 1% annually since 2018) and affordable hybrid learning options.
Grand Canyon stock has gained 21.6% over the past year. LOPE has seen an upward estimate revision for 2024 earnings to $7.98 per share from $7.80 over the past 60 days. This company’s earnings for 2024 are expected to register 13.4% growth from a year ago. Again, it carries an impressive VGM Score of B. Its earnings topped consensus estimate in all the trailing four quarters, with the average surprise being 10.2%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%.
Price and Consensus: LOPE
Lincoln Educational Services: Based in Parsippany, NJ, this company provides various career-oriented post-secondary education services to high school graduates and working adults in the United States. The company has been gaining from transformational growth strategies, which align with rising public interest in alternative education pathways and employer demand for skilled labor amid a workforce skills gap. Strategic expansions, corporate partnerships, and the innovative Lincoln 10.0 platform are driving positive momentum. The company remains well-positioned for long-term growth, with a focus on addressing the nation’s growing demand for skilled trade professionals.
Lincoln stock has gained 33.4% over the past year. LINC has seen an upward estimate revision for 2024 earnings to 51 cents per share from 48 cents over the past 30 days. This company’s earnings for 2024 are expected to register 4.1% growth from a year ago. Again, it carries an impressive VGM Score of A. Its earnings topped consensus estimate in all the trailing four quarters, with the average surprise being 249.4%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%.
Price and Consensus: LINC