What happened
Shares of Adtalem Global Education (ATGE 3.72%) were down by 14.6% as of 1:01 p.m. ET on Wednesday after the healthcare-focused education provider reported earnings results for its fiscal 2022 second quarter.
Revenue increased 58% year over year to $371.2 million, but came in well short of analysts' consensus estimate of $419 million. Earnings per share excluding discontinued operations improved to $0.75 from $0.61 in the prior-year period.
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So what
While the high top-line growth looks like more than enough to support the stock's low price-to-earnings ratio of 6 (based on this year's estimates), revenue got a boost from the company's recent acquisition of Walden University -- a for-profit online institution -- for $1.5 billion. However, investors were more interested in the company's core business, which posted a low single-digit percentage decline in revenue compared to the year-ago quarter.
Higher education has faced headwinds during the pandemic. Management noted in the earnings call that the COVID-19 surge caused by the spread of the omicron variant "forced many healthcare professionals to delay their education plans." This has led to a reduction in its enrollments, which is a factor that's weighing on the stock's valuation.
ATGE PE Ratio (Forward) data by YCharts.
Now what
Adtalem is in the process of divesting its financial services business to focus on the healthcare education industry, where it operates Chamberlain University, American University of the Caribbean School of Medicine, Ross University School of Medicine, and Ross University School of Veterinary Medicine. The company is selling its financial services business to a consortium of Wendel Group and Colibri Group for $1 billion.
In a Jan. 24 press release, CEO Steve Beard said: "This transaction is the culmination of a long-term strategy to sharpen the focus of our portfolio and greatly enhance our ability to address -- at scale -- the rapidly growing and unmet demand for healthcare professionals in the U.S."
Excluding the results of financial services, management is calling for full-year revenues of $1.35 billion to $1.39 billion, with adjusted earnings per share in the $2.90 to $3.10 range.
