Foolish Forecast: Divining DeVry

Summer's almost gone, and with it, DeVry's (NYSE: DV  ) 2007 fiscal year. Now's the time for stocking up on school supplies -- and preparing to grade DeVry's final exam. Q4 and full-year 2007 earnings for the for-profit educator are due out the other side of this weekend.

What analysts say:

• Buy, sell, or waffle? Eighteen analysts follow DeVry, with seven rating the stock a buy, and the rest calling it a hold.
• Revenue. On average, the analysts expect to see 12% sales growth to $241.5 million.
• Earnings. Profits are predicted to rocket 47% to $0.25 per share.

What management says:
DeVry has been on a tear so far this year, with low sales gains transforming into a near-doubling of the profits earned during the first three quarters of the previous fiscal year. The bottom line mainly benefited from management's efforts to trim its payroll costs. CEO Daniel Hamburger intends to keep the cost cuts coming, since he believes the new cost structure will restore margins to their previous health.

In our April Foolish Forecast, we described DeVry's offer as an early retirement program aimed at reducing the firm's complement of campus-based educators, even as the firm expands in the lucrative field of online education. No sooner had we done so, though, than DeVry made the "difficult decision" to make its voluntary separation program compulsory for "145 employees at DeVry University campuses." DeVry expects to report $2.6 million in charges for severance on Monday -- but to save itself about $10 million in wages and benefits every year thereafter.

What management does:
Needless to say, the math looks good for investors (though no so good for the luckless employees). I'd expect that while we may see a hit to net margins on Monday as the charges come home to roost, the layoffs will keep DeVry's gross and operating margins on their steady upward rise.

Margins	12/05	3/06	6/06	9/06	12/06	3/07
Gross	45.9%	46.2%	46.3%	46.7%	47.3%	47.7%
Operating	7.8%	8.1%	8.1%	8.4%	8.9%	9.4%
Net	3.3%	3.8%	5.1%	6.9%	7.3%	7.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Why is DeVry signing severance checks for campus-based employees with one hand, while signing employment contracts for online educators with the other? Two reasons: First, as we've seen in past reports from DeVry's competitors, for-profit educators such as Apollo (Nasdaq: APOL  ) , Strayer (Nasdaq: STRA  ) , Career Education (NYSE: CECO  ) , and Corinthian Colleges (Nasdaq: COCO  ) earn their best profit margins from their online divisions. Second, DeVry's respectable overall student growth rates -- undergrad enrollment up 6.9% in the spring, and total enrollment up 5.5% -- are dwarfed by the explosive growth of its online division, where the combined number of online undergraduate and graduate students in spring 2007 leapt 22.5%. As much as it hurts to see layoffs on the campuses, DeVry is making the right call here -- shrinking its weakest segment while playing to its strength. I expect to see this strategy pay off for DeVry, and its investors, in quarters to come.

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy lets everyone copy off its notes.