Strategic Education (STRA) Down 13.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Strategic Education (STRA). Shares have lost about 13.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Strategic Education due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Strategic Education (STRA) Q4 Earnings Beat, Margins High

Strategic Education, Inc. or SEI reported better-than-expected results in fourth-quarter 2019. The company’s earnings and revenues not only topped analysts’ expectations but also grew from the year-ago level. The uptick was mainly backed by strong top-line numbers, and margins in Strayer and Capella universities.

The company reported adjusted earnings of $2.13 per share, which surpassed the Zacks Consensus Estimate of $2.09 by 1.9% and increased 36.5% from the year-ago quarter.

Total revenues of $263.8 million also surpassed the consensus estimate of $260 million by 1.5%. Notably, the reported figure also jumped 9% from the prior-year level. Adjusted revenues, which excluded the impact of a purchase accounting adjustment in 2018, grew 7.8% year over year.

Segment Details

SEI currently operates in three reportable segments: Strayer (accounting for 52.8% of total 2019 revenues), Capella (45.7%) and Non-Degree Programs (1.5%).

Strayer University: Strayer University’s revenues grew 11.6% year over year to $142.2 million due to higher enrollment and revenue-per-student. Total enrollment grew 10% from the year-ago level to 57,538 students. Enrollment of new and continuing students rose 3% and 12% from the year-ago quarter, respectively. The segment’s operating margin also increased 780 basis points (bps) to 26.6% during the quarter.

During the reported quarter, Strayer University opened a campus in Tallahassee, FL. Also, it opened five campuses in 2019. The university is planning to open four-six campuses in 2020.

Capella University: The segment’s quarterly revenues came in at $117.9 million, reflecting 6.1% year-over-year growth backed by higher enrollment and revenue-per-learner.

Total enrollment at the university grew 2% from the year-ago quarter to 39,220 students. New and continuing student enrollment increased 7% and 1% year over year, respectively. The upside was mainly driven by improved performance of FlexPath, which comprises 34% of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Notably, the university received approval from the Higher Learning Commission to offer the Doctor of Nursing Practice program via FlexPath by second-half 2020.

Its adjusted operating margin came in at 21.3% in the reported quarter, up 90 bps from the year-ago level. In 2019, the company opened the first campus in Atlanta, GA, and plans to open four-six additional campuses in 2020.

Non-Degree Programs: The Non-Degree Programs segment comprises Hackbright Academy, DevMountain, the New York Code + Design Academy and Sophia.

Revenues from the segment increased 2.9% to $3.6 million from the year-ago figure of $3.5 million. Loss from operations was $0.4 million in third-quarter 2019, narrower than a loss of $1.7 million in the year-ago period.

Operating Highlights

Adjusted operating margin in the reported quarter was 23.8%, up 520 bps year over year. Operating loss was $0.1 million during the reported period compared with loss of $1.8 million a year ago.

Financial Details

As of Dec 31, 2019, it recorded cash and cash equivalents of $419.7 million compared with $311.7 million at 2018-end.

During 2019, cash provided by operating activities was $202.1 million compared with $46.9 million a year ago.

2019 Highlights

Adjusted earnings during 2019 came in at $6.67, up 40.4% from 2018. Revenues of $997.1 million also improved 57.2% from a year ago. Adjusted EBITDA increased an impressive 78% from the prior year to $248.7 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.99% due to these changes.

VGM Scores

At this time, Strategic Education has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Strategic Education has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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