Education Stocks Rise to Head of the Class

With the economy in a freefall, we've already read articles listing products and services consumers are most reluctant to relinquish: G3 cell-phone service, Botox injections and premium cable channels. TheStreet.com Ratings' stock-evaluation model has identified a more encouraging item: education.

Only three stocks enjoy the highest possible grade of A-plus from TheStreet.com Ratings' quantitative model, which evaluates a company's valuation metrics, current financial situation and analysts' expectations of future growth. Two of the A-plus stocks -- DeVry(DV Quote) and Strayer Education(STRA Quote) -- are in the field of adult education.

Americans are doing more than worrying about downsizings and how to survive on unemployment compensation. They are signing up for online and classroom programs to enhance their economic marketability.

The consensus among analysts is that, despite the hard times, DeVry's earnings will grow from $1.73 a share in fiscal 2008, which ended in June, to $2.21 this year and $2.76 in 2010. For Strayer, the consensus is for profit of $5.67 a share in 2008 to reach $7 this year and balloon to $8.74 in 2010.

A third buy-rated adult education stock -- the giant of the industry, Apollo Group(APOL Quote) -- is included with DeVry and Strayer in the accompanying table.

AN EDUCATION IN RECESSION-RESISTANCE Company DEVRY STRAYER EDUCATION APOLLO GROUP Ticker DV STRA APOL Industry Diversified Consumer Services Diversified Consumer Services Diversified Consumer Services TheStreet.com Ratings Reward Grade A+ A+ A+ TheStreet.com Ratings Risk Grade B C+ C TheStreet.com Ratings Overall Grade A+ A+ B TheStreet.com Ratings Recommendation Buy Buy Buy Recent price 54.06 189.31 80.20 Market Cap ($Mil.) 3,871.5 2,667.2 12,757.1 Total Assets ($Mil.) 1,018.4 324.6 1,860.4 Total Debt ($Mil.) 0.0 0.0 30.9 Latest Fisc. Yr. Revenue ($Mil.) 1,091.8 396.3 3,140.9 Cash Flow from Operations ($Mil.) 198.6 88.6 726.0 Earnings Before Interest & Taxes ($Mil.) 166.1 126.9 749.5 3-Yr. EPS Ann'l Growth Rate (%) 363.2 73.8 19.3 EPS - Latest Avail. 12 Mos. 1.94 5.67 3.21 EPS - Curr. Year Consensus 2.21 7.00 3.79 EPS - Next Yr. Consensus 2.76 8.74 4.54 Price/Book Ratio 4.6x 15.2x 12.3x Ret'n on Equity (%) 16.7 43.2 49.9 P/E - Current Year 24.5x 27.0x 21.2x P/E - Next Year 19.6x 21.7x 17.7x Dividend Yield (%) 0.30 1.06 0.00 Source: TheStreet.com Ratings (data as of 2/20/2009) For an explanation of our ratings, click here.

Apollo Group is the parent of the Phoenix University system. The company is expected to expand its EPS from $2.87 for fiscal 2008, which ended in August, to $3.79 for the current year and $4.54 in 2010. The stock rates a "B," or a "buy," from TheStreet.com Ratings.

In addition to high marks, the three education stocks have handed investors healthy returns. DeVry has risen 18.7% in the past year, while Strayer has climbed 11.8% and Apollo Group has advanced 22.5%. So far this year, DeVry is down 7.8%, Strayer has fallen 18.1% and Apollo Group is little changed.

With strong balance sheets, the trio of education firms are well-positioned to finance growth, even during the recession. DeVry and Strayer are free of long-term debt, and Apollo's $30.9 million debt is miniscule compared with its $1.86 billion in assets.