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Perdoceo Education Corp (NASDAQ: PRDO ) has embarked on a journey to exit unattractive and unprofitable investments and to focus on assets with the highest return on capital. As a result of this change, revenue shrank from ~$1.9 billion a decade ago to approximately $700 million today. However, I believe the company is now much more profitable and in a better position to deliver attractive returns to shareholders. In terms of valuation, the stock is very cheap, trading at approximately 1.3x EV/LTM FCFF. Moreover, the company has a fortress balance sheet, with over $470 million in cash which gives a good margin of safety. Refinitv Eikon Company Details
Perdoceo Education Corporation offers postsecondary education primarily online to a diverse student population, along with campus-based and blended learning programs. The company’s accredited institutions – Colorado Technical University (‘CTU’) and the American InterContinental University System (‘AIU’) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Its CTU university offers academic programs in business and management, nursing, healthcare management, computer science, engineering, information systems and technology, project management, cybersecurity, and criminal justice. Its AIU offers academic programs in business studies, information technologies, education, health sciences, and criminal justice. Perdoceo The Market Opportunity
From the company’s last 10-K, we learn that the domestic postsecondary education industry is highly fragmented and competitive, with no one provider having a significant market share. According to the National Center for Education Statistics, there were approximately 6,000 postsecondary education institutions eligible for federal student aid in the United States for the academic year 2019-20, including approximately 2,300 for-profit schools; approximately 2,000 public schools which include state universities and community colleges; and approximately 1,800 private non-profit schools. According to the U.S. Department of Education, over the 12-month period for the academic year 2018-19, approximately 26.3 million students were enrolled in postsecondary institutions.
The domestic postsecondary degree-granting education industry was valued at approximately $671 billion for the academic year 2017-18, according to a report published in 2020 by the US Department of Education. PRDO competes in this industry primarily with other degree-granting regionally accredited colleges and universities. In particular, there is growing competition from online programs at these institutions as they increase their online offerings in response to the COVID-19 pandemic and growing prospective student interest.
According to a recent study , the global E-learning market size is projected to reach ~$457.8 billion by 2026, growing at a CAGR of 10.3% during 2021-2026. The major factors driving the growth of the e-learning market are rapid growth in internet connectivity in emerging economies, a rise in digitization, and the advent of cloud infrastructure. The US has been at the forefront of online learning, having a considerable share of the global market (~40%). The US E-learning market is projected to grow at a CAGR of 7% for the period 2020-2026. Given the industry’s relatively high growth rate compared to the forecasted GDP growth rate over the same period, there is a chance this sector will outperform the market over the next few years. Moreover, the fact that PRDO operates in a fragmented market provides many M&A opportunities. Catalysts
Perdoceo Education, formerly known as Career Education Corporation, assumed its new name in January 2020. In recent years, the company has embarked on a journey to exit unattractive segments and focus on increasing profitability. Despite going from ~$1.9 billion in revenue in FY11 to ~$700 million in FY20, the company is now doing much better than a decade ago. PRDO has improved gross margin from 66.4% to more than 80% today, which is reflected in the company’s free cash flow. Despite lower revenues, the company is now generating over $170 million in LTM free cash flow vs. ~$152 million in FY21, which is an important milestone for a $710 million market cap. company. Should the recent operational improvements persist, PRDO could turn out to be a cash cow that provides a high return on investment, which is bullish for the stock. Morningstar Moreover, I believe the company will benefit from favorable industry trends such as strong demand for postsecondary education, continued demand for skilled professionals, and increased participation from non-traditional students adult learners who are looking for a career pivot. Speaking of technology, PRDO has implemented the use of sophisticated personalized learning technologies within its universities and through its virtual campus. The company’s proprietary learning management system named intelli path serves as a powerful platform to help students […]
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