WHAT'S IT ALL ABOUT - SLVN
Ken, there's more than one question there and I don't know the answers. Maybe I can give you some leads - with links <ggggg>.
I had a feeling that this wasn't going to be a quick look under the hood.
In your words < Co. appears to have everything in the world going for it on the FA side. High growth rate, EPS etc. In looking at the 10K etc. I find that Rev's on the three parts of the biz. are all showing 40 to 60% increase in rev's Q over Q and year to year. With lower costs, in most cases and higher margins.>
Your interpretation of the fundies is echoed in this Individual Investor's article from the July 99 issue:
individualinvestor.com
<Ever since it hit our hot-stocks screen last August, Sylvan Learning Systems (Nasdaq: SLVN) has earned straight A's for performance (meeting analysts' earnings estimates), growth rate (revenue climbed to $440 million in 1998, maintaining a three-year run that averaged 73% annually), and a strong balance sheet ($33 million in cash and just $12 million in long-term debt). Increases in same-center sales, up 17% last year, rated an additional gold star. But during the past year investors have put the company in the dunce's chair. Since June 15, 1998, when shares stood at $30.63, the stock has lost 12% of its value, to a recent $27, after bottoming in April at $21.06.
Based in Baltimore and operating in 105 countries, Sylvan is the market leader in testing (it administers computer-based Scholastic Aptitude Tests for the Educational Testing Service), tutoring, and training for schools, governments, and corporations. Yet a few analysts have questioned whether the company's business model has sufficient focus to sustain growth. Bear Stearns' David A. Nadel, for one, gives Sylvan a neutral rating for being too dependent on government funding and new testing contracts, and faults management for assigning some expenses to nonprofit corporations it has set up to fund advertising programs (Sylvan co-CEO Douglas Becker defends the accounting as appropriate).
Other analysts are convinced that the numbers have made Sylvan's case. Peter P. Appert of BT Alex. Brown, who rates Sylvan a "strong buy," cites the company's expanding profit margin--8.8% in the first quarter compared with 7.2% last year--as proof of the underlying strength in all three of its operating divisions: Learning Centers, Testing, and Contract Services. Appert thinks those expanding margins should lead to dramatic growth in earnings per share (up 43% in the first quarter, to $0.13) as Sylvan's revenue climbs. Besides answering critics, the first-quarter numbers broke the share-price slide; the stock jumped 25%, and Marta K. Nichols of Donaldson, Lufkin & Jenrette raised her grade on Sylvan from "market perform" to "buy."
Sylvan has taken further steps to win Wall Street's favor, including a buyback of 750,000 of the company's 51 million shares and an aggressive overseas expansion program. In October, the company purchased Schulerhilfe, a German tutoring business with nearly 900 locations in several countries. In January, it announced an agreement to acquire 54% of Universidad Europea de Madrid, the first step in a 10-year multimillion-dollar strategy to create a network of private colleges abroad. And Sylvan's profitable testing division has won several lucrative contracts, one of which (for administering all driver's license theory exams in Great Britain) is valued at $125 million over six years.
But will investors finally give the company the grade it deserves? Seven out of eight analysts rate Sylvan a "strong buy," and Appert thinks shares will hit $46 in 2000, 83% above the recent price--which would put it right back on our hot-stock screen.>
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Not everyone agrees with the rosy picture being painted. From July issue of Worth, Stocks to Avoid section:
worth.com
<SYLVAN LEARNING (NASDAQ: SLVN, $28) $21. Sylvan's management team is spread thin among a lot of segments of the education- services market, and the company's internal growth appears to be slowing. Meanwhile, earnings aren't as high as they look because roughly 5 percent is income from a trust that Sylvan set up after a onetime gain.>
The stock is being shorted by Diserio Capital Management. Diserio believes that the Co. will not meet future earning estimates. The story is featured in the August 16th edition of Barrons. Diserio sites recent loss of a nursing contract as the start of a new trend for SLVN.
The SLVN bulls like the Company's strategy of expanding services overseas as the US market has become overly competitive. Here's a quote from a Legg Mason analyst:
cnnfn.com
<"Sylvan is a very different company from most of the ones I follow," the analyst said. "It's almost a portfolio of different companies within one company. What I would emphasis for Sylvan is the newest venture is buying post-secondary schools overseas, that's in Europe and South America, a market that's vastly under-served, that no other American company is going after. In most European countries, if you don't pass the exam, your career could be shattered. Sylvan's creating a new avenue for people to go to by creating and growing private institutions that could provide education overseas.">
The insider selling appears to be from management that has left Sylvan and from temporary relationships formulated for various reasons...as far as I can make out.
Last week's downgrade can be placed on the bullish side of the equation. The price target was moved down to $29 by
Warburg Dillon Reed, significantly higher than the current price.
That's the basics. You'll need to spend several days pouring over data
in order to get to the bottom of this puzzle.
Sergio |
