Strayer Education, Inc. (STRA), for-profit education company, recently posted better-than-expected third-quarter 2010 results on the heels of an increase in students’ enrollment. The quarterly earnings of $1.72 per share beat the Zacks Consensus Estimate of $1.70 and jumped 42% from $1.21 in the year-ago quarter. The Zacks Consensus Estimate was stable prior to the earnings announcement.
Strayer Education, which owns the Strayer University, said it now expects fourth-quarter earnings between $2.64 and $2.66 per share, and fiscal 2010 earnings between $9.63 and $9.65 per share. The current Zacks Consensus Estimates of $2.65 for fourth-quarter and $9.65 for fiscal 2010 dovetail with the company’s outlook.
For fiscal 2011, the company expects earnings in the range of $11.30 to $11.50 per share. The current Zacks Consensus Estimate of $11.40 remains in sync with management’s guidance.
Management said that total revenue for the quarter came in at $147.6 million, slightly ahead of the Zacks Consensus Revenue Estimate of $146 million, but grew 29% from the prior-year quarter, buoyed by a rise in enrollment and a 5% increase in tuition fees, effective January 2010.
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 2010 fall term jumped 12% to 60,711 students. The company informed that total campus-based students rose 11% to 54,347, and online students surged 18% to 6,364. However, the company informed that new student enrollment dropped 2%.
Strayer Education forecasted a 12% growth in enrollment in fiscal 2010, and a 13% in fiscal 2011.
Strayer Education notified that it will execute another 5% increase in tuition fees, effective January 2011, and forecasted a revenue growth of 17% to 18% for fiscal 2011.
Operating income for the quarter soared 40% to $38.2 million, whereas operating margin expanded 210 basis points to 25.9%.
Strayer Education is in the midst of a rapid expansion plan and expects to open 8 new campuses in 2011. The first three campuses, which will be opened for the winter term 2011, will be located in Cincinnati and Dayton, Ohio and in Milwaukee, Wisconsin.
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. Recently, 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) now expects enrollment to rise in the range of 16% to 17% in fourth-quarter 2010, reflecting a slower growth compared with the previous quarters. The sector bellwether Apollo Group Inc. (APOL) also cautioned that enrollment in its first-quarter 2011 would drop by more than 40%, and withdrew its outlook for the fiscal year, citing an uncertain regulatory environment.
The company also portrays a healthy debt-free 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 $64 million, shareholders’ equity of $189.8 million and no debt. During the first nine-months of 2010, the company generated $141.4 million in cash from operating activities and made capital expenditures of $32.1 million.
During the quarter, Strayer Education repurchased 296,000 shares at an average price of $173.3, aggregating $51.2 million, and had $16.8 million at its disposal under its share repurchase authorization as of September 30, 2010. The company’s Board recently authorized a $150 million share repurchase program.
The company also boosted its annual dividend by 33% to $4.00 per share. The quarterly dividend of $1.00 per share will be paid on December 10, 2010, to shareholders of record as on November 26, 2010.
Currently, we have a Neutral recommendation on the stock. Strayer Education holds a Zacks #4 Rank, which translates into a short-term Sell rating.
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