Laureate Education: Attractive Valuation And Growth Drivers Ahead

Investment Thesis - Laureate Education is positioned as a leading player in the private higher education sector in Mexico and Peru, with a projected share value between $20 and $23, indicating a potential upside of 40-60% from current levels [2] - The company has a low leverage ratio (0.2x Net Debt/EBITDA) and is undervalued based on earnings and free cash flow multiples [2] - Global trends such as the shift to hybrid and online education models and nearshoring in Mexico are expected to drive growth for Laureate [2] Company Overview - Laureate Education holds market shares of 11% in Mexico and 17% in Peru, with over 450,000 students enrolled across 50 campuses and 5 universities [3] - The company has strong brand recognition and high accreditation standards, contributing to retention rates around 80% [3] - Average revenue per student ranges from $3,000 to $4,000 annually, with total revenues around $1.5 billion and EBITDA margins of approximately 30% [4] Growth Opportunities - Higher education penetration rates are low in Mexico and Peru, with over 90% of new educational offerings coming from private institutions [7] - Online education penetration is significantly lower in these markets compared to advanced economies, presenting a substantial growth opportunity [7] - The nearshoring trend allows Laureate to create industry partnerships and align educational programs with job market needs [8] Growth Strategy - The company aims to achieve a 10% revenue growth rate over the next five years, driven by new educational centers, programs, and online expansion [9] - EBITDA margins are expected to improve through operational efficiencies and a greater emphasis on online education [9] Financial Performance and Shareholder Returns - Laureate has returned $10 per share in dividends from 2021 to 2024, equating to 70% of the current share value [10] - The company has reduced capital expenditures to around 5% of revenues, leading to significant free cash flow [10] - Share repurchases have been a method of returning capital to investors, indicating management's belief in the stock's undervaluation [10] Valuation - A discounted cash flow model and comparables analysis suggest estimated share prices between $18 and $23, reflecting a potential upside of 30-60% [12] - Current multiples are compressed at around 5x EBITDA, compared to historical multiples of 8x to 15x [11] Conclusion - Laureate Education is well-positioned to benefit from the growing demand for higher education in Latin America, with significant potential for shareholder returns [16] - The company's strategic focus on hybrid and online learning, along with its established brand presence, supports its growth trajectory [16]