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Don’t Get Schooled By DeVry Inc. (DV)

DeVry Inc. (NYSE:DV) was up over 16% earlier this month on better than expected quarterly earnings. The for-profit education company has seen its stock soar over 55% the last six months. Are there still opportunities for this education company to go higher? Maybe not, but I believe there is one company in the industry that could be a solid buy.

DeVry’s recent run up was a result of higher profits, thanks in part to lower costs. Its quarterly earnings were up to $50 million, or $0.78 per share, from $9 million, or $0.13 per share for the same quarter last year. This number beat analysts’ expectations handily, which were $0.56 per share. This positive news comes despite the company’s struggles with poor enrollment growth, which has previously played a key role in the EPS growth (sequentially) of 26%, 24%, 56%, and 41% in the prior four quarters.

DeVry Inc. (NYSE:DV)Although earnings did beat estimates, the details of the recent earnings announcement show that DeVry’s quarterly sales fell 3.6% and enrollment was down 5.4% year over year. What’s more is that full year 2013 (ending June) earnings are expected to come in 20% below 2012 EPS (check out DeVry’s company profile).

Like I said, I don’t think DeVry is the best play in the for-profit higher-education industry, and when looking at the company’s valuation this becomes even clearer:

Price to Earnings (next year earnings) Price to Sales
DeVry (NYSE:DV) 11.5 0.95
American Public Education (NASDAQ:APEI) 15.2 2.36
Apollo Group (NASDAQ:APOL) 7.9 0.56
Corinthian Colleges (NASDAQ:COCO) 7.7 0.13
Strayer Education (NASDAQ:STRA) 12.1 1.27

Apollo Group Inc (NASDAQ:APOL) is my pick as the best stock in the industry and a potential buy for investors. It is one of the cheapest stocks in the industry, on both a price to earnings and price to sales basis. Meanwhile, it has better expected growth than top competitors DeVry and Strayer Education Inc (NASDAQ:STRA) :

5-Yr. Expected EPS Growth (Wall Street estimates)
DeVry 8.90%
American Public Education 15.50%
Apollo Group 10.20%
Corinthian Colleges 17.70%
Strayer Education 9.50%

Although Corinthian Colleges Inc  offers investors solid growth opportunities at an attractive valuation, the company is fundamentally different from online educators, where it operates campuses across the country. As a result, Corinthian has returns (ROI and ROE) that is subpar to some of the major operators. Recent quarterly results for Corinthian showed total new students enrollment fell by 4% year over year.

Digging even deeper, DeVry has been struggling with respect to return metrics:

Return on Investment Return on Equity
DeVry 10.80% 11.40%
American Public Education 27.30% 20.00%
Apollo Group 29.90% 38.60%
Corinthian Colleges 4.70% 5.60%
Strayer Education 47.10% 131%

American Public Education, Inc. (NASDAQ:APEI) also operates in the industry as one of the smaller online educators, with a sub-$1 billion market cap. The company reported recent third quarter 2012 earnings of $0.60 per share, beating consensus estimates of $0.50. Total revenue was also up 18% year over year. Although American Public Education has performed well, its valuation is now at the top of the industry.