Brean Capital Cuts Price Target on China Distance Education (DL) to $14 Following 3Q15 Results
Brean Capital maintained a Buy rating on China Distance Education (NYSE: DL), and cut the price target to $14.00 (from $23.00), following the company's 3Q15 earnings results. DL reported revenue of $28.8 million, ahead of the consensus estimate of $27.9 million. Non-GAAP EPS was $0.16, significantly ahead of Street expectations of $0.04. Management guided revenue ranging between $35.3 million to $37.0 million, considerably below consensus expectations of $45.2 million.
Analyst Anne Shih commented, "China Distance Education reported another quarter of slower enrollment growth, with lower visibility over the near term given multiple factors causing the weakness in its performance. The company revised downward their full year guidance, with fiscal fourth quarter revenue guide well below consensus expectations. While we are cautious on the enrollment weakness, lower visibility for recovery in enrollments, and the company’s lowered growth profile, we believe the recent considerable pullback in the stock reflects this and more. And though DL’s pure online business model leads to disproportionately negative impact on margin during enrollment downturns, on the other hand, the company gains leverage with each incremental enrollment during periods of growth. We have reduced our estimates to reflect lower visibility on a pickup in enrollment growth and recovery in average selling price growth; mid- to longer-term there may be potential upside from more meaningful contribution from new revenue drivers (teacher training, college cooperation, etc.). Consequently, we are maintaining our Buy rating and lowering our TP from $23 to $14, reflecting 1) the significant pullback already factoring in enrollment weakness, 2) fundamental market position as a leading online professional education services provider with an established brand, but 3) slower anticipated growth profile with lower visibility."
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Shares of China Distance Education closed at $9.50 yesterday.