On Dec 17, we reiterated our Neutral recommendation on Strayer Education Inc. (STRA). The company beat earnings estimates in the third quarter of 2013. However, we remain cautious until we see substantial enrollment growth and improvement in the overall industry.
Why a Neutral Recommendation?
On Oct 31, 2013, Strayer’s third quarter earnings of 30 cents per share crushed the Zacks Consensus Estimate of 5 cents due to lower share count. Total revenue was in line with the Zacks Consensus Estimate of $110 million.
However, earnings declined 17% year over year due to weak top-line performance and sluggish margins. Total revenue in the quarter dropped 11% from the comparable prior-year quarter to $110 million due to continued weak enrollment trends. In addition, the company is undertaking a bold restructuring plan – including job cuts and site closures -- and an aggressive cut in tuition fees.
Overall we are encouraged by Strayer’s strong brand position. Further, the company’s corporate alliances give it a competitive advantage and contribute significantly to growth.
However, Strayer has been witnessing a drop in enrollment due to continued unemployment, overall economic downturn and subsequent decline in student demand. We therefore prefer to remain on the sidelines until we witness a significant improvement in enrollment trends and the overall industry environment
Other Stocks to Consider
Strayer Education holds a Zacks Rank #3 (Hold). Better-ranked stocks in the education sector include ITT Educational Services Inc. (ESI), New Oriental Education & Technology Group Inc. (EDU) and Xueda Education Group (XUE). Both ITT Educational Services and New Oriental Education & Technology Group carry a Zacks Rank #1 (Strong Buy), whereas Xueda Education Group carries a Zacks Rank #2 (Buy).