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Strategic Education (STRA) Up 10.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Strategic Education (STRA). Shares have added about 10.3% in that time frame, outperforming the S&P 500.

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

Strategic Education (STRA) Q3 Earnings Top, Enrollments Up

Strategic Education, Inc. or SEI’s third-quarter 2019 earnings and revenues not only topped analysts’ expectation but also grew from the year-ago level. The positive performance was mainly backed by strong top-line numbers across segments, given higher enrollment.

This for-profit education company reported adjusted earnings of $1.28 per share, surpassing the Zacks Consensus Estimate of $1.25 by 2.4%. Also, the reported figure increased 39.1% from the year-ago quarter.

Total revenues of $241.7 million surpassed the consensus estimate of $237 million by 2%. Notably, the reported figure also jumped 50.2% from the prior-year level.

Segment Details

SEI currently operates in three reportable segments: Strayer (accounting for 52.9% of total third-quarter revenues), Capella (45.7%) and Non-Degree Programs (1.4%).

Strayer Segment: The Strayer segment consists of Strayer University, which includes programs offered through the Jack Welch Management Institute.

Strayer University’s revenues grew 11.7% year over year to $127.8 million due to higher enrollment. Total enrollment grew 11% from the year-ago level to 50,582 students. Enrollment of new and continuing students rose 4% and 13% from the year-ago quarter, respectively. The segment’s operating margin also increased 420 bps to 14.6% during the quarter.

Capella Segment: The Capella segment consists solely of Capella University.

The segment’s third-quarter revenues came in at $110.5 million, reflecting 152.4% year-over-year growth backed by higher enrollment and increasing revenue-per-learner.

Total enrollment at the University grew 2% from the year-ago quarter to 38,451 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 33% of Capella University’s Bachelors and Master’s degrees total enrollment.

Its adjusted operating margin came in at 16.9% in the reported quarter, down 10 bps from the year-ago level.

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

Revenues from the segment increased to $3.4 million from the year-ago figure of $2.7 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 15.3%, up 350 bps year over year. Adjusted EBITDA also increased a notable 49.7% from a year ago to $50.9 million.

Financial Details

As of Sep 30, 2019, it recorded cash and cash equivalents of $397.1 million compared with $311.7 million at 2018-end.

During the first nine months of 2019, the company's cash provided by operating activities was $141.4 million versus $14.6 million of cash used in operating activities a year ago.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Strategic Education has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Strategic Education has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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