LOPE Q4 Earnings Call Confirms Growth but Highlights Persistent Regulatory and Cost Risks

What happened

Grand Canyon Education reported Q4 2025 earnings, revealing continued enrollment growth with partner enrollments reaching 138,073, up 7.9% year-over-year, supporting service revenue. The company provided FY 2026 guidance, projecting service revenue growth in the mid-single digits, aligning with the base case scenario but not exceeding it. Management emphasized the Department of Education's formal recognition of GCU's nonprofit status in December 2025, yet the provisional Title IV agreement still expires on June 30, 2026, a hard regulatory deadline. Marketing costs remained at 22% of revenue, but the company warned of future increases as it invests in new partners and locations, pressuring margins. The stock's muted reaction reflects that the market had priced in steady execution while discounting unresolved regulatory and cost headwinds.

Implication

The guidance for 2026 service revenue growth in the 5-7% range meets base case expectations but does not trigger a rating upgrade, requiring monitoring of marketing costs staying below 22.5%. Regulatory risk remains elevated with the June 30, 2026 Title IV expiry, and any adverse action by the ED could severely impact the concentrated revenue base from GCU. Buyback execution under the extended authorization to March 1, 2027 must be confirmed to support per-share metrics, as cash levels have declined due to prior repurchases. Enrollment growth, while solid, faces headwinds from potential contract modifications and rising acquisition costs, limiting margin expansion. Overall, the investment case hinges on upcoming regulatory clarity and cost control, with an attractive entry point around $160 to mitigate downside risks.

Thesis delta

The earnings call did not shift the investment thesis; the 'WAIT' rating remains justified as guidance met but did not exceed the thresholds needed for an upgrade. Key risks—including the June 30, 2026 regulatory expiry and rising marketing costs—persist, and the upside case reliant on accelerated buybacks and lower marketing intensity remains unconfirmed.