Strayer Tops, New Enrollment Falls - Analyst Blog
May 02 2011 - 9:15AM
Zacks
Strayer Education,
Inc. (STRA), for-profit education company, recently posted
better-than-expected first-quarter 2011 results. The quarterly
earnings of $2.80 per share beat the Zacks Consensus Estimate of
$2.67 and jumped 6% from $2.65 earned in the year-ago quarter due
to the fall in share count on account of a share buyback.
Total revenue for the quarter came
in at $172 million, marginally ahead of the Zacks Consensus
Estimate of $171 million, and grew 9% from the prior-year quarter,
buoyed by a rise in enrollment and a 5% increase in tuition fees,
effective January 2011.
The educational institute, which
offers degree programs in business administration, accounting,
information technology, education, health care, public
administration and criminal justice, said that total enrollment for
the 2011 spring term was 55,974 students compared with 55,970 in
the same term last year. The company informed that total
campus-based students were 50,416 versus 50,478 year-ago and online
students inched up 1% to 5,558. However, the company informed that
new student enrollment plunged 19%.
Operating income for the quarter
fell marginally by 1% to $59.2 million, whereas, operating margin
contracted 360 basis points to 34.4%.
Strayer Education is in the midst
of a rapid expansion plan and expects to open 8 new campuses in
2011. Till date the company has opened 5 campuses. The first three
campuses opened for the winter term 2011 are located in Cincinnati
and Dayton, Ohio and in Milwaukee, Wisconsin. The company also
recently opened two new campuses for the 2011 spring term, one
located in Indianapolis, Indiana, and the second one in Dallas,
Texas.
Strayer Education, which owns the
Strayer University, said it now expects second-quarter 2011
earnings between $2.36 and $2.38 per share based on the enrollment
for the 2011 spring term. The current Zacks Consensus Estimate for
the quarter is $2.37.
Strayer Education is a prominent
player in the for-profit post-secondary education industry. The
company’s sustained effort to expand educational programs and to
open new campuses has helped boost enrollment, and in turn, the top
line.
However, the current potential risk
looming over the education sector is the regulation proposed by the
Department of Education that may weigh upon students’ enrollments
and the company’s profits. The Department of Education proposed
that an educational program could only qualify for Title IV funds,
if it helps in achieving gainful employment, which includes the
criteria of loan repayment rate and debt-to-income ratios. The
company derives a major portion of its revenues from federal
student financial aid programs, the Title IV programs. The
education institutions are also under the scanner due to the rise
in the default rate of student loans.
Capella Education
Company (CPLA) cautioned that new enrollment in
second-quarter 2011 is expected to tumble by 40%.To counter
sluggishness in students’ enrollment, education companies are
resorting to restructuring their cost base. Capella said that it
lowered its headcount by about 120 non-faculty workforces and
incurred a charge of about $1.9 million for the same in the
quarter. Management hinted that the eliminations will result in
cost savings of approximately $12 million to $12.5 million per
year.
Strayer Education portrays a
healthy balance sheet, and is actively managing its capital,
returning much of its free cash to shareholders.
Strayer Education ended the quarter
with cash and cash equivalents of $71.1 million and shareholders’
equity of $73.3 million. During the quarter, the company generated
$67.2 million in cash from operating activities and made capital
expenditures of $11.4 million.
During the quarter, Strayer
Education repurchased 936,000 shares at an average price of
$135.91, aggregating $127.2 million. As of March 31, 2011, Strayer
Education had $80.5 million at its disposal under its share
repurchase authorization. The company’s Board of Directors also
paid a quarterly dividend of $1.00 per share during the
quarter.
Currently, we have a long-term
‘Neutral’ rating on the stock. Strayer Education, which competes
with Apollo Group Inc. (APOL) and
Corinthian Colleges Inc. (COCO), holds a Zacks #3
Rank, which translates into a short-term ‘Hold’ recommendation that
correlates with our long-term view.
APOLLO GROUP (APOL): Free Stock Analysis Report
CORINTHIAN COL (COCO): Free Stock Analysis Report
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
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