The dwindling economy coupled with stringent regulatory
environment and falling enrollments are making life tougher for
education companies, and
Strayer Education, Inc.
(
STRA
) remains no exception. The for-profit education institutions are
now restraining from aggressive admission practices amidst
condemnation related to the issue of a rise in the default rate of
student loans
Strayer Education recently reported fourth-quarter 2011 results,
and in the following paragraphs we will discuss the recent earnings
announcement, subsequent estimate revisions by analysts as well as
the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Strayer Education reported its fourth quarter financial results
on February 16, 2012. For-profit education company's quarterly
earnings of $2.30 per share topped the Zacks Consensus Estimate of
$2.26, but it plunged 16% from $2.73 in the year-ago quarter.
Management had earlier forecast fourth quarter earnings between
$2.24 and $2.26 per share.
Total revenue for the quarter dropped 9% from the prior-year
quarter to $155.8 million, attributable to a fall in enrollment,
partially offset by a 5% increase in tuition fees, effective
January 2011. Total revenue marginally came ahead of the Zacks
Consensus Estimate of $155 million. In order to check the falling
revenue caused by waning enrollments, Strayer Education implemented
a 3% hike in tuition fees with effect from January 2012.
Strayer Education now expects first-quarter 2012 earnings
between $2.07 and $2.09 per share based on enrollment for the 2012
winter term and investment plans for new campuses.
(Read our full coverage on this earnings report:
Strayer Tops, Enrollment Falls
)
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that the majority
of the analysts were unidirectional following Strayer Education's
fourth-quarter 2011 results.
In the last 7 days, 8 out of 13 analysts covering the stock
lowered their estimates, whereas only 1 analyst raised the same for
the first quarter of 2012. For the second quarter, 9 analysts
revised their estimates downwards, but none made an upward
revision.
For fiscal 2012, 9 analysts revised their estimates downwards,
while only 1 analyst moved in the opposite direction in the last 7
days. As for 2013, 6 analysts made a downward revision to their
estimates, while none upped their estimates.
What Drives Estimates Revision?
Clearly, a negative sentiment is palpable among most of the
analysts, who remain pessimistic on Strayer Education's
performance. Following the earnings release, the Zacks Consensus
Estimate has been depicting a downfall with the majority of the
analysts remaining bearish on the stock.
Strayer Education's fourth quarter results failed to impress the
analysts, who foresee a downward pressure on the stock in the near
future, as the company continues to grapple against falling
enrollments. The company said that total enrollment for the 2012
winter term declined 12% to 50,432 students. The company informed
that total campus-based students fell 12% to 45,563 and online
students slipped 17% to 4,869. The company stated that new student
enrollment dropped 8% and continuing student enrollment declined
13%.
The potential risk looming over the education sector is the
regulation proposed by the Department of Education that may weigh
upon students' enrollment and the company's 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.
According to critics, the students flocking to the educational
institutions generally use federal loans. The education companies
derive a major portion of its revenues from federal student
financial aid programs, the Title IV programs. Some of the
institutions enroll less-potential students, who after graduating
face difficulties in getting a job due to a lack of talent or the
challenging economy, and consequently default.
The institutions are under the scanner due to the rise in the
default rate of student loans, and are now being asked to submit
information relating to recruitment procedures and use of student's
grant. These days the companies are thus adopting stringent
admissions criteria.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
Estimates.
The Zacks Consensus Estimates for both the first and second
quarters of 2012 dropped 17 cents and 13 cents to $2.09 and $1.89,
respectively, in the last 7 days.
For fiscal 2012 and 2013, the Zacks Consensus Estimates fell 34
cents and 63 cents to $6.88 and $7.26, respectively, in the last 7
days.
Zacks Rank Defining Neutral Stance
Currently, we have a long-term 'Neutral' rating on the stock.
Moreover, Strayer Education, which competes with
Apollo Group Inc.
(
APOL
) and
Corinthian Colleges Inc.
(
COCO
), holds a Zacks #3 Rank that translates into a short-term 'Hold'
recommendation.
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
http://www.zacks.com/education
APOLLO GROUP (
APOL
): Free Stock Analysis Report
CORINTHIAN COL (
COCO
): Free Stock Analysis Report
STRAYER EDUC (
STRA
): Free Stock Analysis Report
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