The dwindling economy coupled with
stringent regulatory environment and falling enrollments are making
life tougher for education companies, and Strayer
Education, Inc. (STRA) remains no exception. The
for-profit education institutions are now restraining from
aggressive admission practices amidst condemnation related to the
issue of a rise in the default rate of student loans
Strayer Education recently reported
fourth-quarter 2011 results, and in the following paragraphs we
will discuss the recent earnings announcement, subsequent estimate
revisions by analysts as well as the Zacks Rank and long-term
recommendation for the stock.
Last Quarter
Synopsis
Strayer Education reported its
fourth quarter financial results on February 16, 2012. For-profit
education company’s quarterly earnings of $2.30 per share topped
the Zacks Consensus Estimate of $2.26, but it plunged 16% from
$2.73 in the year-ago quarter. Management had earlier
forecast fourth quarter earnings between $2.24 and $2.26 per
share.
Total revenue for the quarter
dropped 9% from the prior-year quarter to $155.8 million,
attributable to a fall in enrollment, partially offset by a 5%
increase in tuition fees, effective January 2011. Total revenue
marginally came ahead of the Zacks Consensus Estimate of $155
million. In order to check the falling revenue caused by waning
enrollments, Strayer Education implemented a 3% hike in tuition
fees with effect from January 2012.
Strayer Education now expects
first-quarter 2012 earnings between $2.07 and $2.09 per share based
on enrollment for the 2012 winter term and investment plans for new
campuses.
(Read our full coverage on this
earnings report: Strayer Tops, Enrollment Falls)
Agreement of Estimate
Revisions
The agreement of estimate revisions
indicates that the majority of the analysts were unidirectional
following Strayer Education’s fourth-quarter 2011 results.
In the last 7 days, 8 out of 13
analysts covering the stock lowered their estimates, whereas only 1
analyst raised the same for the first quarter of 2012. For the
second quarter, 9 analysts revised their estimates downwards, but
none made an upward revision.
For fiscal 2012, 9 analysts revised
their estimates downwards, while only 1 analyst moved in the
opposite direction in the last 7 days. As for 2013, 6 analysts made
a downward revision to their estimates, while none upped their
estimates.
What Drives Estimates
Revision?
Clearly, a negative sentiment is
palpable among most of the analysts, who remain pessimistic on
Strayer Education’s performance. Following the earnings release,
the Zacks Consensus Estimate has been depicting a downfall with the
majority of the analysts remaining bearish on the stock.
Strayer Education’s fourth quarter
results failed to impress the analysts, who foresee a downward
pressure on the stock in the near future, as the company continues
to grapple against falling enrollments. The company said that total
enrollment for the 2012 winter term declined 12% to 50,432
students. The company informed that total campus-based students
fell 12% to 45,563 and online students slipped 17% to 4,869. The
company stated that new student enrollment dropped 8% and
continuing student enrollment declined 13%.
The potential risk looming over the
education sector is the regulation proposed by the Department of
Education that may weigh upon students’ enrollment 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.
According to critics, the students
flocking to the educational institutions generally use federal
loans. The education companies derive a major portion of its
revenues from federal student financial aid programs, the Title IV
programs. Some of the institutions enroll less-potential students,
who after graduating face difficulties in getting a job due to a
lack of talent or the challenging economy, and consequently
default.
The institutions are under the
scanner due to the rise in the default rate of student loans, and
are now being asked to submit information relating to recruitment
procedures and use of student’s grant. These days the companies are
thus adopting stringent admissions criteria.
Magnitude of Estimate
Revisions
The magnitude of estimate revisions
by the analysts is clearly reflected through changes in the Zacks
Consensus Estimates.
The Zacks Consensus Estimates for
both the first and second quarters of 2012 dropped 17 cents and 13
cents to $2.09 and $1.89, respectively, in the last 7 days.
For fiscal 2012 and 2013, the Zacks
Consensus Estimates fell 34 cents and 63 cents to $6.88 and $7.26,
respectively, in the last 7 days.
Zacks Rank Defining
Neutral Stance
Currently, we have a long-term
‘Neutral’ rating on the stock. Moreover, Strayer Education, which
competes with Apollo Group Inc. (APOL) and
Corinthian Colleges Inc. (COCO), holds a Zacks #3
Rank that translates into a short-term ‘Hold’ recommendation.
As a PhD from MIT, Len Zacks
proved over 30 years ago that earnings estimate revisions are the
most powerful force impacting stock prices. He turned this ground
breaking discovery into two of the most celebrating stock rating
systems in use today. The Zacks Rank for stock trading in a 1 to 3
month time horizon and the Zacks Recommendation for long-term
investing (6+ months). These “Earnings Estimate Scorecard” articles
help analyze the important aspects of estimate revisions for each
stock after their quarterly earnings announcements. Learn more
about earnings estimates and our proven stock ratings at
http://www.zacks.com/education
APOLLO GROUP (APOL): Free Stock Analysis Report
CORINTHIAN COL (COCO): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
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