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GPX And FC: Consolidation In Cards In For-Profit Education

|Includes:FC, GP Strategies Corporation (GPX)

For-profit education stocks have been beaten to pulp in recent months and valuations are attractive. However, prevention is better than cure and since several of these companies may eventually turn out to be value traps, it is advisable to take an indirect exposure into players which usually look for distressed assets. With valuations falling like nine pins in the for-profit education space, it is going to be a gala time for solid players such as GP Strategies Corporation (NYSE: GPX) and Franklin Covey Company (NYSE: FC) which have great appetites for acquisitions.

GP Strategies Corporation is the proverbial diamond in the rough. The company has been steadily making inroads through its performance improvement solutions. This can be seen in the company's growing top line from $259.9 million in 2010 to $436.7 million last year. Most of this growth has come from selective and bolt-on acquisitions undertaken by the company. It has made 25 acquisitions since 2006, including two last year.

Despite the hectic activity of buying out competitors, the company does not have debt piling on its books. Its debt equity ratio of just 0.01 is nothing short of a miracle. GP Strategies has achieved this by funding the acquisitions through the cash flow generated from operations. Apart from directly boosting the top line, the strategy of streamlining backend operations but keeping different frontend creates significant cross-selling opportunities. What's not reflected in the past performance is that the company is at an inflection point and is investing heavily in building a robust infrastructure to support the growing global business in Europe, the Middle East, Asia and Latin America.

Franklin Covey Company is another solid player in this field with consistently growing revenues and profits in the last four years. The company specializes in creating performance improvement solutions for its clients in areas of management skills, relationship skills, and individual effectiveness.

For the latest quarter ended March 1, 2014, the company reported a 15 percent jump in revenues to $46.5 million and thanks to its excellent cost controls, net income jumped 23.8 percent to $1.9 million. The stock jumped following the announcement of bumper results and continues to trade firm close to its 52-week high.

Analysts at William Blair have recently initiated coverage with an 'outperform' rating on the stock. At a price earnings ratio of 27.2, the stock may not be compelling, but its attractiveness primarily rests on the company's ability to identify and acquire complementary businesses. It acquired NinetyFive 5 - a sales improvement specialist - last year. Franklin Covey's debt equity ratio of just 0.26 indicates the company has a great scope for further leverage.

Stocks: GPX, FC