Strayer Education Inc. (STRA) is a prominent playerin the for-profit post-secondary education industry. The company’s sustained effort to expand educational programs and open new campuses has boosted enrollments and the top line.
Total revenues in second-quarter 2010 grew 26% to $159.3 million. The educational institute stated that total enrollment for the 2010 summer term jumped 23% to 52,221 students. The company informed that total campus-based students rose 22% to 46,872, and online students surged 31% to 5,349.
Furthermore, Strayer Education is in the midst of a rapid expansion plan and expects to open 13 new campuses in 2010.
Higher education sees a countercyclical movement during sluggish economic conditions. Post-secondary enrollments tend to rise as both unemployed and employed workers return to school to re-skill themselves and existing students remain in school for a longer duration compelled by the intensely competitive job market.
Strayer Education also portrays a healthy debt-free balance sheet, and is actively managing its capital, returning much of its free cash to shareholdersvia share repurchases and dividends.
However, intense competition from public and private colleges, and the seasonality of its business, undermines the company’s future growth prospects. Strayer Education faces intense competition from companies offering post-secondary education, such as Apollo Group Inc. (APOL), Corinthian Colleges Inc. (COCO) and DeVry Inc. (DV).
Further, 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. The Department of Education proposes that an educational program could only qualify for Title IV funds if it helps achieve gainful employment. The company derives a major portion of its revenues from federal student financial aid programs, the Title IV programs.
Given the pros and cons, we prefer to be Neutral on the stock. However, Strayer Education holds a Zacks #4 Rank, which translates into a short-term Sell rating.
STRAYER EDUC (STRA): Free Stock Analysis Report
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