Domestic, High school / Secondary 2, Investors, Legislation, Private education, Public education, Publishers, Required - Written by Paul Glader on Friday, September 16, 2011 2:00 - 0 Comments
Wall Street Roundup: A Look at Baird’s Bullish View on K12 Inc. (LRN)
Analyst Amy Junker over at Baird Equity Research updated her research on K12 Inc. (LRN) recently, adjusting 2011 earnings per share to .91 cent for Fiscal 2012. She predicts the stock, currently priced around $26 per share, will rise to $34 per share, driving the market capitalization for K12.Inc beyond its current value of $817 million.
K12 Inc., founded in 2000 and headquartered in Herndon, Virginia, is a technology-based education company that offers proprietary curriculum, software, and management services for online delivery to students in kindergarten through 12th grade, or K-12. The company’s primary market focus is the virtual or online public school industry. K12 also sells its proprietary curriculum to schools and home school families. As of December 31, the K12 school system had an average enrollment of 83,320 students in 27 states and D.C as well as nearly 14,980 students from the KC Distance Learning acquisition.
Here’s some key reasons for her thesis on the stock, which provide some excellent background on the market:
Regulatory issues. K12′s schools are subject to state government regulations and licensing requirements. Failure of any school to comply with the requirements could result in sanctions, fines, probations, or in severe cases, revocation of the license to operate.
High school growth negatively impacts margins. The newer high school offering generates a lower margin than the K-8 business due to differences in scale and higher teacher pay. While management expects the gap to close, the faster growth in high school could lower margins in the near term.
Teacher unions. K12 has faced opposition from unions while lobbying for legislation that would create virtual public schools. The company was previously involved in two lawsuits concerning virtual charter school laws, both involving teachers unions, which were resolved in favor of the company. We expect teacher unions to continue to resist the company’s efforts to expand.
Revenue concentration. Two schools (Ohio Virtual Academy and the Pennsylvania Virtual Charter School) each contributed over 10% of revenue, and together generated 28% of K12′s F2010 revenue. Future revenue could be significantly impacted by any decline in the funding levels or in enrollment, the loss of a contract, or a legal challenge to the status to the two schools.
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