Investment Thesis
I.Favorable Industry Dynamics
i.Strong Demand
According to US Census bureau, only 34% of 128 million working adults (25 years and older) have a 4 year college degree. Only 10% have post graduate or professional degrees
ii.High Profitability
Tuition pricing is typically set by traditional schools, which have much higher cost structures than for-profit schools like DeVry. Additionally, the government aid limits are adjusted based on tuition prices of traditional schools
The intense demand from target students and government set aid limits allow companies like DeVry to provide educational services at prices similar to traditional schools, but with much lower costs.
II.Margin Expansion
i.Operating Leverage
In 2010, DeVry University increased enrollment by 14.9% and saw operating margins expanding from 13% in 2009 to 23% in 2010
ii.Positive Mix-Shift
At full capacity, operating margin of Medical & Healthcare segment is approximately 34% while operating margin of Business & Technology segment is 23%. The current enrollment trends point towards increasing enrollment in Medical & Healthcare segment as a percent of total enrollment. This creates a positive mix shift
III. Mis-pricing Due To Uncertainty Related To Gainful Employment Regulation
Debt burden results are unknown. Two possibilities can arise :
i. DV retains fully eligible (upside case) – high growth and expanding margins
ii. DV is restricted (base case) – can still grow tuition from 3%-6%
DV Pitch (full analysis)
See attached .pdf file “DV Pitch” for a full analysis
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