DeVry Downgraded to Neutral - Analyst Blog

We currently downgrade the shares of DeVry Inc. (DV) from Outperform to Neutral due to intense competition from public and private colleges and the risks associated to regulatory matters as well as government-funded financial aid programs that may limit the above-market performance of the company.

With a market cap of $4 billion, DeVry is a leading provider of post-secondary educational services in North America. Moreover, the company has a rich experience of more than 75 years in the education industry and commands a portfolio of strong brands, including DeVry University and Ross University. This provides a competitive edge to the company and strengthens its well-established position in the market.

However, DeVry is subject to risks relating to regulatory matters. If DeVry fails to comply with the extensive regulatory requirements for its business, DeVry could face fines and penalties, including loss of access to federal and state student financial aid for its students.

Further, DeVry faces intense competition from other companies offering postsecondary education, such as Apollo Group (APOL), Corinthian Colleges (COCO), Strayer Education (STRA) and ITT Educational (ESI). Moreover, the company also competes with community colleges, traditional universities and technical colleges. Consequently, the company is under severe stress to maintain profitability.

Nevertheless, the company has a consistent track record of returning cash to shareholders in the form of regular dividends and share buybacks. During fiscal 2008, 2009 and the first quarter of fiscal 2010, DeVry utilized cash reserves of $32.3 million, $43.7 million and $17.4 million, respectively, towards share buybacks and payment of dividends.

DeVry has a sound long-term debt-free balance sheet, with cash and cash equivalents of $279.2 million at the end of fiscal 2010 first quarter. This offers a financial flexibility to the company to drive future growth.

The Illinois-based university offers associates, bachelor's and master's degree programs in technology, healthcare, business and management through more than 90 campuses to nearly 70,000 students. It maintains a Zacks #3 Rank (Hold), in line with our long-term Neutral recommendation on the shares.
 
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