The U.S. education sector has seen diverse growth fueled by factors such as the growing popularity of e-books, the expansion of online learning platforms, increased demand for healthcare professionals, advancements in technology, the adoption of hybrid teaching models and strategic acquisitions targeting global expansion. Despite these advancements, companies within the Zacks Schools industry face challenges, including higher advertising and marketing costs, expenses tied to online education and the emerging threat posed by generative artificial intelligence (AI).
Despite these hurdles, players in the industry, such as Adtalem Global Education Inc. ATGE, Laureate Education, Inc. LAUR, Strategic Education, Inc. STRA and Perdoceo Education Corporation PRDO, are expected to benefit from innovative product offerings, particularly those incorporating AI and game-based learning, alongside prudent cost management and a focus on profitability. For-profit education companies are also forming partnerships with corporations and community colleges to enhance workforce education.
Industry Description
The Zacks Schools industry comprises for-profit education companies that offer undergraduate, graduate and specialized programs in finance, accounting, analytics, marketing, healthcare, business and technology. They are engaged in offering career-oriented programs in the fields of business and management, nursing, computer science, engineering, information systems and technology, project management, cybersecurity and criminal justice. The industry players also offer child-care services and career-oriented post-secondary courses. Some companies within the industry also provide yoga classes and yoga-related retail merchandise-integrated fitness classes, along with conducting workshops and teacher training programs.
3 Trends Shaping the Future of the School Industry
Rising Demand for Online Education & Healthcare Professionals: For-profit education stocks have been reaping the benefits of the rise in the virtual delivery of education. Many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned with the help of various online education platforms. Also, classroom-type-education-providing companies are cashing in on the unprecedented surge in demand for online education. The industry players have been focusing on non-traditional education models and innovative teaching platforms to improve efficiency, enhance student experiences and support expansion through new campuses and program replication.
Meanwhile, healthcare and global institutions have been making substantial contributions to the companies' financial success. The U.S. healthcare sector is presently grappling with a pronounced shortage of skilled professionals, which is posing a significant risk to the quality of care and exacerbating health disparities across the country. The companies have designed their programs to be rigorous and well-suited to address the workforce needs of the healthcare industry. Industry stakeholders also anticipate a future where the demand for healthcare professionals will outstrip the available supply.
Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: To boost profitability, school companies are resorting to aggressive cost-cutting through significant layoffs, campus closings and consolidations. Developments such as switching to online education programs, increasing use of technology in education, more investments in education and the regular introduction of programs and specializations should boost student outcomes. Tie-ups with different organizations to reduce exposure to Title IV funding, improve academic quality and retain students also bode well. Many for-profit education companies are investing in diversified platforms, non-degree programs and designing programs specifically aimed at meeting the educational needs of working adults in targeted professions.
Higher Rates & Generative AI Systems: The Federal Reserve’s earlier moves, comprising a series of rate increases to combat inflation, made a slew of debt offerings, including new mortgages, credit cards and some student loans, more expensive. Although federal student loans are doled out at a fixed rate, private loans come with variable rates that have been edging up.
Generative AI systems have the remarkable ability to generate highly sophisticated textual outputs based on brief human prompts. Major tech companies are in fierce competition to create superior versions of this technology, and the rapid advancements in generative AI pose a potential threat to the new customer growth rate of educational companies. The emergence of AI could disrupt the traditional business models of the industry players.
Meanwhile, the industry is reeling under challenges like inflation and stagnant traditional campus enrollment growth, given the rising demand for online education platforms and remote learning options. Again, any general economic slowdown will reduce the number of jobs available to graduates and result in lower salaries offered in connection with the available employment, affecting the companies’ placements and persistence. Additionally, the slowdown may compel students to default on their loans, which could increase institutions’ student loan cohort default rates, ultimately bumping up bad debt expenses. Higher default rates may also adversely impact the industry players’ eligibility to participate in some Title IV programs, affecting the companies’ operations and financial condition. Additionally, increased competition, higher expenses for advertising and various programs and a shortage of skilled labor are concerning. Higher unemployment levels may prove detrimental to for-profit education companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry is a 15-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #29, which places it in the top 12% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since January 2025, the industry’s earnings estimates for 2025 have increased to $1.75 per share from $1.55.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector & S&P 500
The Zacks Schools industry has lagged the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 Composite over the past year.
The stocks in this industry have collectively gained 1.8% compared with the broader sector’s rise of 13%. Meanwhile, the S&P 500 has increased 19.6% in the said period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing for-profit education stocks, the industry is currently trading at 16.2X versus the S&P 500’s 22.2X and the sector’s 18.9X.
Over the past five years, the industry has traded as high as 286.8X, as low as 13X and at a median of 22X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 School Stocks to Buy Now
Below we have discussed four stocks from the industry that currently sport a Zacks Rank #1 (Strong Buy) and 2 (Buy) and have solid growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Adtalem: Based in Chicago, IL, this company is a leading healthcare education provider and workforce solutions innovator. The company has achieved significant benefits by consistently implementing its "Growth with Purpose" strategy alongside strategic collaborations and investments in marketing, technology and student support services. In the fourth quarter of fiscal 2024, this strategy drove a 10% increase in enrollment by prioritizing strategic and efficient expansion. By focusing on operational excellence, the company has not only delivered positive financial results but also set new performance benchmarks for fiscal 2025. This success underscores the company’s dedication to upholding high standards and fostering sustainable growth.
Adtalem stock — currently sporting a Zacks Rank #1 — has surged 105.7% over the past year. ATGE has seen an upward estimate revision for fiscal 2025 earnings to $6.20 per share from $5.89 over the past 30 days. This company’s earnings for fiscal 2025 are expected to register 23.8% growth from a year ago. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 21.6%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%.
Price and Consensus: ATGE
Laureate Education: Headquartered in Miami, FL, this company operates five higher education institutions across Mexico and Peru. It has maintained its position as the largest higher education provider in Mexico and Peru in 2024. The company strengthened its academic offerings, particularly in health sciences, by launching six medical schools, two dental schools and a veterinary school. These strategic investments contributed to increased enrollment and improved institutional rankings. Investments in digital education and campus expansion have been supporting growth.
Laureate Education stock — currently sporting a Zacks Rank #1 — has rallied 49.6% over the past year. LAUR has seen an upward estimate revision for 2025 earnings to $1.51 per share from $1.44 over the past 30 days. This company’s earnings for 2025 are expected to register 11.9% growth from a year ago.
Price and Consensus: LAUR
Perdoceo Education: Headquartered in Schaumburg, IL, this company offers postsecondary education programs through online, campus-based and blended learning formats across the United States. It has been benefiting from an improvement in the enrollment trend in its Colorado Technical University (“CTU”) segment. The company’s focus on increased investments in technology and student-serving processes drives growth. The acquisition of the University of St. Augustine for Health Sciences has expanded its graduate health sciences offerings and student base. With a strong balance sheet, the company remains committed to investing in student technology and support while maintaining liquidity.
PRDO, carrying a Zacks Rank #2, has seen an upward estimate revision for 2025 earnings to $2.41 per share from $2.36 over the past seven days. The stock has soared 46% over the past year. This company’s earnings for 2025 are expected to grow 5.2%. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 8%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: PRDO
Strategic Education, Inc. or SEI: Based in Herndon, VA, SEI delivers educational services through both traditional campus-based learning and online post-secondary education, along with programs designed to equip individuals with job-ready skills. The company is likely to benefit from a strong demand environment, improved enrollment trends and strong revenue per student. Also, a focus on digital learning platforms, competency-based learning models and direct assessment capabilities bodes well. The company is focusing on providing programs based on a competency-based learning model and direct assessment capabilities. One of these innovations is FlexPath. FlexPath continues to be one of the company’s fastest-growing programs as it allows students to focus on leveraging their skills and knowledge gained during professional hours. Another product offering is the Workforce Edge, under STRA’s Education Technology Services segment. This platform serves as a low-cost source of new enrollments, offering a full-service education benefit administration solution for employers.
STRA currently has a Zacks Rank #2. The stock has surged 6.1% over the past year. The company’s earnings for 2025 are expected to register 17.6% growth year over year. Its earnings topped consensus estimates in each of the trailing four quarters, with the average surprise being 40.4%. Moreover, its three-to-five-year expected EPS growth rate is currently pegged at 15%. It also has a favorable VGM Score of B.
Price and Consensus: STRA
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