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DACA And The Looming School Exodus

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DACA has come to an end and the education industry could be affedcted

The end of Deferred Action for Childhood Arrivals (DACA) is not just a depletion in the labor force. It will also impact school enrollment numbers. In the early 2000s, Colorado schools were unable to predict annual student population, resulting in some over crowding and missed teacher-to-student ratios. This was due, in-part, to rapid influx of immigrant children. Other states and districts have had similar experiences.

Adults that immigrate illegally often do so to better the lives of their children via education. With DACA removed there could be a school exodus that affects publicly traded companies in the education industry. Add this problem to the growing problem of teacher exodus and the challenges ahead become very clear. American Public Education, Inc. (NASDAQ: APEI) and Student Transportation, Inc. (NASDAQ: STB) are just two school companies that could lose revenue as DACA is rescinded.

BREAKING NEWS: Attorney General Jeff Sessions says DACA immigration policy is being rescinded

— CNN (@CNN) September 5, 2017

American Public Education, Inc. owns multiple schools and focuses upon online college education, including master's degrees. The popular American Military University attracts men and women of the U.S. armed forces, however being in the military is not required. Their lessor known institution is Hondros College of Nursing, which has campuses in Ohio. HCON offers a list of nursing degrees at the campuses and online. Many of these are accredited and can take Federal Student Aid.

Student Transportation, Inc. owns and operates school bus fleets. Although Canadian owned, chances are you've seen them at work throughout the United States. Texas and California are just a couple of the states they transport school children and also donate volunteer services.

These consumer demographics will be negatively affected if: (1) current DACA students must leave the U.S.; and (2) the young student population from abroad (legal/illegal) is curtailed by the DACA freeze. Organic growth, that is the natural interest of Americans to have children (naturally or adoption) is not of bullish proportion. It is only immigration that bolsters big consumer pops.

The Swift Free Cash Flow (FCF) Yield

American Public Education's Q3 financial statement is due out November 7th. Historically, they are a cash flow positive company and in 2016 they had nearly $40m in FCF. Meanwhile, their Q2 progress also looks good. They had $16.27m in Operating Cash Flow (OCF) and only $5.68m in CapEx. The FCF Yield is approximately 3.58% (Market Capital). The yield in relation to Enterprise Value is 4.60%.

Student Transportation, Inc. has an offsetting fiscal year with Q3 having ended March 31, 2017. The Free Cash Flow (FCF) was strong in the third quarter with approximately $25m, but overall 9mo Operating Cash Flow was significantly lower at $2m resulting in a negative FCF. Although a seasonal company, which would explain the swings, Q4 may not be enough to be cash flow positive. STB will be left out of the following chart.

American Public Education, Inc. FCF Yield Chart

Free Cash Flow is obtained by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.


Disclosure: I/we have no positions in APEI or STB, and no plans to initiate any positions within the next 72 hours.

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