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K12 Inc (LRN) Educational Performance

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Spring is arriving and summer is quick to follow. However, there are still plenty of months left in the academic year. With the school year still in full swing, America’s leading provider of proprietary curriculum and online blended school programs for students in pre-K through high school- thus setting the standards for public school goals, K12 Inc. (NYSE:LRN), released their 2014 Academic Report. The report provides an in-depth look into the overall performance of students in K12-managed public schools. Some of their findings include, “on Scantron assessments, students in K12-managed public schools overall outperformed the mean norm group gain in both Reading and Mathematics” and “in K12-managed public schools, as in most public schools, lower income students – those eligible for free or reduced-price lunch – do not perform as well as students not eligible for federal meal subsidies.”

Morgan Stanley analyst Suzanne Stein, recently recommended BUY K12 Inc. (NYSE:LRN) after the release of this report and after attending the company’s second annual Academic Day. Suzanne came to the conclusion that, “persistence is the key to improving student performance – the longer students stay with K12, the more they progress.”

K12 Inc. LRN

K12 Inc. LRN

Suzanne has a long history publicly recommending educational companies since 2011. Her successful recommendations of companies Houghton Mifflin Harcourt Co. (NASDAQ:HMHC) and Strayer Education Inc (NASDAQ:STRA) have helped earn her a +3.4% average return and a 55% success rate of recommendations.

Suzanne recommended BUY K12 Inc. (NYSE:LRN) earlier in February of this year, despite some slight disappointment. Suzanne noted, “While 2014 has turned out to be disappointing, we view it as a bridge year towards a more solid 2015. We continue to believe funding will improve thanks to stabilizing state budgets while management will continue to focus on cutting costs.” This recommendation earned Suzanne +1.0% over S&P-500.

In the same educational vein, Suzanne recommended BUY Houghton Mifflin Harcourt Co. (NASDAQ:HMHC) in December of 2013. Suzanne argued, “HMH is a leader in the digital evolution of K 12 content and is poised to benefit from a recovery in spending. HMH has a strong balance sheet and growing free cash flow. We see the risk/reward as attractive.” Suzanne earned +14.5% over S&P 500 (INDEXSP:.INX) for this recommendation.

Suzanne earned another high return when she recommended SELL Strayer Education Inc (NASDAQ:STRA), also in December of last year. The company that owns Strayer University found themselves in a bit of a cost dilemma and left Suzanne saying SELL. Suzanne found that “Margin compression could be severe. Despite implementing an aggressive price strategy (via scholarships), start trends have weakened. A new plan to cut the sticker price for undergrads by 20%, and offer a 25% scholarship on top may stabilize enrollments but creates a mismatch between the cost structure and the company’s top line prospects, despite a plan to cut $50M overhead.” Suzanne added that, “current valuation in our view does not reflect the downside. Given aggressive pricing strategies of competitors, lower prices may not be enough to stabilize the business.” Suzanne earned +8.7% over S&P-500.

However, Suzanne has experienced a few losses, especially when she veered away from educational companies and recommended analytics companies, such as Verisk Analytics, Inc. (NASDAQ:VRSK) in February of this year. Suzanne recommended BUY VRSK, but lowered her price target from $74 to $73. Suzanne argued, “Shares fell on slowing insurance revenue growth and flat margins in Risk Assessment, but we see this as a buying opportunity. Healthcare and Specialized markets improved after negative commentary last quarter, but Insurance (in Decision Analytics) is an open question for 2014. Despite the deceleration in this segment to 7.3% y/y in Q4 from the 8-9% level earlier in the year, we believe revenue should accelerate in F14 due to cross-selling, a healthier P&C market, and eventual synergies from the EVT deal.” However, this recommendation has yet to see a positive return, earning -2.2% over S&P-500.

Despite Suzanne’s losses, she has proven to have a strong track record in the education market, with a 100% success rate of education company recommendations. To continue following Suzanne as the summer starts to approach, be sure to download TipRanks, and start making informed decisions with advice you can trust.

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