Factors Setting the Tone for K12 (LRN) This Earnings Season

Zacks Equity Research
·4-min read

K12 Inc. LRN is scheduled to report first-quarter fiscal 2021 results on Oct 26, after market close.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 300% and 2.6%, respectively. This technology-based education company’s fiscal fourth-quarter earnings and revenues also grew 50% and 4.9%, respectively.

Markedly, its earnings surpassed expectations in three of the last four quarters, with the average surprise being 70.8%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s bottom line has been unchanged at a loss of 34 cents per share. This indicates a deterioration from the year-ago loss of 25 cents per share. Nonetheless, the consensus mark for revenues is $365 million, suggesting a 42% year-over-year improvement.

K12 Inc Price and EPS Surprise

K12 Inc Price and EPS Surprise
K12 Inc Price and EPS Surprise

K12 Inc price-eps-surprise | K12 Inc Quote

Factors to Note

Continued demand for online learning options have been benefiting K12’s top line in recent times. Moreover, investments focused on improving user experience, enhancing teacher tools and strengthening student engagement bode well. Some key investments include a new mobile learning management system for kindergarten fifth grade learners, an adaptive algorithm that gauges and adjusts students’ reading level as well as matches them to appropriate texts, along with new courses for their career pathway. It also carried out the migration of most customer-facing applications to Amazon Web Services or AWS. This change, in particular, will aid its initiatives to scale the business in a more cost-effective way, as it ramps up enrollment and expands the business in the coming years.

In addition to higher enrollments and stronger-than-expected student retention (partly attributable to revenues it recognized in relation to services provided in fiscal 2020), the Galvanize acquisition is expected to have contributed to revenues as well.

However, the institutional business — which includes both non-managed public school programs and institutional software and services — is expected to have declined in the quarter due to contract terminations. Additionally, Institutional software and services revenues are expected to have dipped in the quarter because of the COVID-19 pandemic.

Although the ongoing focus on cost reduction and operating efficiency is expected to have aided its margin to some extent, the Galvanize buyout along with lower institutional sales are likely to have weighed on the bottom line.

What the Zacks Model Unveils

Our proven model does not predict an earnings beat for K12 in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, K12 carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies in the Zacks Consumer Discretionary sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Hasbro, Inc. HAS has an Earnings ESP of +3.44% and holds a Zacks Rank #3.

Mohawk Industries, Inc. MHK has an Earnings ESP of +4.62% and carries a Zacks Rank #1.

Netflix, Inc. NFLX has an Earnings ESP of +2.14% and carries a Zacks Rank #3.

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