Strayer Education, Inc. (STRA), a for-profit education company, recently posted better-than-expected fourth-quarter 2010 results. The quarterly earnings of $2.73 per share beat the Zacks Consensus Estimate of $2.64 and jumped 18% from $2.32 earned in the year-ago quarter.
Total revenue for the quarter came in at $172 million, marginally short of the Zacks Consensus Estimate of $173 million but grew 17% 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 winter term spiked 4% to 57,608 students. Strayer Education’stotal campus-based students also rose 4% to 51,570 and online students increased 10% to 6,038. However, new student enrollment into Strayer Education plunged 20%.
Operating income for the quarter grew 12% to $58.9 million; however, operating margin contracted 130 basis points to 34.3%.
Strayer Education is in the midst of a rapid expansion plan and expects to open 8 new campuses in 2011. The first three campuses opened for the winter term 2011 are located in Cincinnati and Dayton, Ohio and in Milwaukee, Wisconsin. The company also plans to open two new campuses for the 2011 spring term, one in Indianapolis, Indiana, and the other in Dallas, Texas.
Strayer Education, which owns the Strayer University, said it now expects first-quarter 2011 earnings between $2.65 and $2.67 per share based on enrollment growth for the 2011 winter term and the opening of new campuses. The current Zacks Consensus Estimate of $2.66 dovetails with the company’s guidance range.
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 regulation proposed by the Department of Education, that is looming over the entire education sector, may also weigh upon students’ enrollments into Strayer Education and its profits. 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) cautioned that new enrollment in first-quarter 2011 could tumble by 35%.To counter sluggishness in students’ enrollment, education companies are resorting to restructuring their cost base. Capella said that it would lower its headcount by about 125, which represents approximately 8% of its non-faculty workforce. Management hinted that the eliminations will result in cost savings of approximately $12 million to $12.5 million per year.
Other Financial Details
Strayer Education 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 $64.1 million, shareholders’ equity of $176 million and no debt. During fiscal 2010, the company generated $162.8 million in cash from operating activities and made capital expenditures of $46 million.
During the quarter, Strayer Education repurchased 296,000 shares at an average price of $143, aggregating $42.3 million. The company bought back 687,000 shares at an average price of $168, aggregating $115.5 million in fiscal 2010. As of December 31, 2010, Strayer Education had $107.7 million at its disposal under its share repurchase authorization. Management further augmented the authorization by $100 million.
The company’s board of directors recently declared quarterly dividend of $1.00 per share, payable on March 10, 2011 to stockholders of record as of March 3, 2011.
Currently, we have a long-term ‘Underperform’ rating on the stock. Strayer Education, which competes with Apollo Group Inc. (APOL) and Corinthian Colleges Inc. (COCO), holds a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ recommendation, and correlates with our long-term view.
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