A month has gone by since the last earnings report for Strategic Education (STRA). Shares have added about 9.7% 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 drivers.
Strategic Education (STRA) Q1 Earnings & Revenues Beat Estimates
Strategic Education, Inc. or SEI (STRA) reported better-than-expected results in first-quarter 2019. The positive performance was mainly backed by strong top-line numbers across its segments, given higher enrollment and lower operating expenses.
The company reported adjusted earnings (on a pro-forma basis) of $1.66 per share, surpassing the Zacks Consensus Estimate of $1.43 by 16.1%. Also, the reported figure increased 29.1% from the year-ago quarter.
Total revenues of $246.5 million surpassed the consensus estimate of $240 million by 2.7%. Notably, the reported figure also jumped 7.9% (on a pro-forma basis) from the prior-year level.
Notably, the financial results are on a pro-forma basis and assume the merger closed on Jan 1, 2018.
SEI currently operates in three reportable segments: Strayer (accounting for 51.9% of the total revenues), Capella (46.5%) and Non-Degree Programs (1.5%).
Strayer Segment: The Strayer segment consists of Strayer University, which includes programs offered through the Jack Welch Management Institute.
Strayer University’s revenues grew 11.1% year over year to $128.1 million. Total enrollment grew 11.5% from the year-ago level to 51,479 students. Enrollment of new students rose 13.2% and that of continuing students increased 11.1% from the year-ago quarter. The segment’s adjusted operating margin also increased 390 basis points (bps) during the quarter.
Notably, during the reported quarter, Strayer opened new campuses in Mobile, AL and Fort Worth, TX. It has plans to open four-six additional campuses through the remainder of 2019.
Capella Segment: The Capella segment consists solely of Capella University.
The segment’s first-quarter revenues came in at $114.7 million (up 5.6% year over year), backed by higher enrollment and increasing revenue-per-learner.
Total enrollment at the University grew 2.9% from the year-ago quarter to 39,271 students. New student enrollment also increased 14.7%, with continuing student enrollment growth of 0.7% year over year. The upside was mainly driven by improved performance of FlexPath, which comprises 30% of Capella University’s Bachelor’s and Master’s degrees total enrollment.
Its adjusted operating margin expanded 330 bps in the reported quarter. Meanwhile, the University is planning to open Capella University learner support centers in Atlanta, GA in the second quarter and Orlando, FL in the third quarter.
Non-Degree Programs Segment: The Non-Degree Programs segment comprises Hackbright Academy, DevMountain, The New York Code + Design Academy and Sophia.
Revenues in the segment declined 17.6% from the year-ago figure to $3.8 million. The company’s reported revenues increased more than three times to $3.8 million in the quarter from the year-ago period, mainly due to the inclusion of revenues from DevMountain, Hackbright Academy and Sophia.
Adjusted operating margin in the reported quarter was 19.6%, up 430 bps year over year. Adjusted EBITDA also increased a notable 59.4% from a year ago to $24.8 million. Adjusted operating expenses grew by a meager 2.5% to $198.2 million in the quarter.
As of Mar 31, 2019, it recorded cash and cash equivalents of $352.4 million compared with $311.7 million at 2018-end.
In the quarter, the company provided $58.7 million cash from operating activities versus $17 million in the year-ago period.
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 7.82% due to these changes.
Currently, Strategic Education has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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.
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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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