Grand Canyon Education paints an optimistic outlook

Published: 2025-06-24 00:55:33 ET LOPE

Published on 06/24/2025 at 00:55, updated on 06/24/2025 at 07:53

By Maya Patel

Grand Canyon Education has started the year on a positive note with a rise in service revenue from increased partner enrollments. The company’s optimistic guidance levels and encouraging performance have pushed the stock higher over the past year. However, competition from other emerging companies in this space may need to be watched out in the future.

Grand Canyon Education, Inc. was established in 2008 and is based in Arizona, US. It provides an array of support services in the post-secondary education sector. The company primarily acts as a shared services partner dedicated to serving colleges and universities through operational functions that achieve organizational growth and student success. In this area, the company has developed technological solutions, infrastructure and operational processes to provide superior services.

The company supports 22 university partners across the country. Grand Canyon Education’s most significant partner is Grand Canyon University (GCU), a comprehensive regionally accredited university.

Grand Canyon Education posted a 5.3% y/y increase in service revenue to $289.3m, driven by an increase in partner enrollments of 5.8% to 127,779 at March 31, 2025, as compared to 120,788 at March 31, 2024. Revenue per student declined slightly owing to contract modifications for some of its university partners, partially offset by the service revenue per student for accelerated Bachelor of Science in Nursing students at off-campus classroom and laboratory sites. GCU enrollments rose to 123,773 at March 31, 2025, and university partner enrollments at the off-campus classroom and laboratory sites were 5,027 including 1,021 GCU students. Enrollment growth was further supported by the opening of one site in the quarter, taking the total number of these sites to 46 at March 31, 2025.

Operating income rose by 4.2% to $88m, with margins remaining flat at around 30%. Net income therefore rose by 5.3% to $71.6m. The company’s liquidity position decreased by $20m due to share repurchases and capital expenditures, reaching $304.7m at March 31, 2025 from $324.6m at December 31, 2024.

The company provided an encouraging outlook for the year and remainder of the quarters on May 6, 2025. The company expects to report service revenue between $239m and $241.5m in Q2, between $250.5m and $257.5m in Q3, and between $301m and $311.5m in Q4. Overall, the group anticipates to clock service revenue between $1,079.8m and $1,099.8m in FY 25, with operating margin between 27.3% and 28%.

The company’s stock reacted sharply to the news and jumped over 9% to a high of $202.3 the following day.

Grand Canyon Education reported a modest revenue CAGR of 5.8% over FY 19-24, reaching $1bn. Operating income remained almost flat with a CAGR of 0.6%, reaching $277m in FY 24, with margins contracting 7.7% to 26.8%. However, net income declined at a CAGR of 2.7% to $226m in FY 24, impacted by lower interest and investment income.

Cash and equivalent rose from $122m at end-FY 19 to $325m at end-FY 24, supported by steady cash inflow from operations and proceeds from sale of investments. Total debt to equity settled slightly higher at 13.8% at end-FY 24 from 11.7% at end-FY 19.

In comparison, Stride, Inc., a local peer, outperformed with a revenue CAGR of 15% over the same period, reaching $2bn in FY 24. Operating income surged at an impressive CAGR of 39.2% to $250m in FY 24. As a result, net income increased at a CAGR of 40.6% to $204m.

Over the past 12 months, the company's stock has delivered robust returns of approximately 41%, reflecting a positive fundamental trajectory. In comparison, Stride, Inc.’s stock outperformed with staggering returns of 111% over the same period.

The sharp rise in share prices has pushed the valuation higher compared to its historical average. Grand Canyon Education is currently trading at a P/E of 22.1x, based on the FY 25 estimated EPS of $8.6, which is higher than its 3-year historical average of 19.7x. The company is also trading slightly higher than that of Stride, Inc.’s valuation of 21.8x.

Likewise, in terms of EV/EBIT, the company is currently trading at 15.7x, based on the FY 25 estimated EBIT of $305.2m, which is higher than that of Stride, Inc. (13.5x).

Grand Canyon Education is monitored by three analysts, all of whom have ‘Buy’ ratings for an average target price of $217, implying 13.4% upside potential from the current price. Their views are further supported by an anticipated EBIT CAGR of 9.5% over FY 24-26, reaching $330.4m, with margins of 28.3% in FY 26. In addition, analysts estimate a net profit CAGR of 7.1%, reaching $259.6m with margins of 22.2% in FY 26, with EPS expected to increase to $9.5 in FY 26 from $7.7 in FY 24. Likewise, analysts estimate EBIT CAGR of 41.3% and net profit CAGR of 34.7% for Stride, Inc.

Grand Canyon Education remains optimistic and determined to deliver on its goals over the long run. The company plans to invest heavily in the initiatives of its university partners, supported by a strong balance sheet. However, the group is prone to some risks including a fall in enrollments, and competition from other emerging companies, which can result in partner migration. This could lead to pricing pressure and falling revenue.

Maya Patel