We have maintained a Neutral recommendation on
Strayer Education Inc.
(
STRA
) following appraisal of second quarter 2012 results.
Strayer Education's second quarter 2012 earnings of $1.85 per
share missed the Zacks Consensus Estimate by a penny. It plunged
27% from the year-ago quarter due to revenue declines. Revenues
fell 11% due to decline in enrollments and revenue/student in the
quarter. Total enrollment at Strayer University for the 2012 summer
term declined 7% to 44,236 students. While continuing student
enrollments declined 11%, new enrollments were up 9%. The company's
new enrollments have increased for two consecutive quarters, which
is encouraging considering declines at most peer companies.
Strayer Education provides post-secondary education through its
wholly owned subsidiary, Strayer University. It is focused
primarily on working adults in traditional classroom courses as
well as online. The company offers convenient weekend and evening
courses which are well suited for the work-day schedules of working
adults. Currently, these mid-career professional are apprehensive
of going back to school due to the difficult overall market
environment. But once the stringent regulatory environment and
overall economic conditions stabilize, working adults will seek
additional education to secure better jobs or to advance their
careers.
We are encouraged by Strayer's strong brand position and its
geographic expansion strategy of opening new campuses every year,
both in new sates and markets. Strayer has grown from eight
campuses in one state in 1996 to 92 campuses in 23 states in the
U.S. In summer term of 2012, the company opened 4 new campuses and
expects to open another 4 in the latter half of 2012. The company's
enrollment in new campuses jumped 25% in the first quarter and 31%
in the second quarter of 2012. We believe that the company's
geographic expansion strategy will drive further enrollment growth,
going forward.
The company's convenient evening, weekend and online courses
attract corporate alliances and community college articulation
agreements. Currently, the company has employer arrangements with
both private and government organizations like Capital One,
Department of Health and Human Services, Federal Bureau of
Investigation,
McDonald's
(
MCD
),
Starbucks Corporation
(
SBUX
) and many more. Strayer's corporate alliances give it a
competitive advantage and contribute significantly to growth. The
community college articulation agreements allow for credits and
degrees earned at partner institutions to be transferable to a
related Strayer University degree. These agreements usually bring
students who finish with strong outcomes.
On the flip side, no matter the growth in new enrolments, the
company continues to suffer from a difficult regulatory environment
as well as weak student demand. The company has been witnessing
decline in enrollments over the last 18 months due to continued
unemployment, overall economic downturn and a related decline in
student demand due to lower confidence in job prospects. The third
quarter outlook was also disappointing due to lower enrollments in
the summer term, decline in revenue/student and higher expenses
associated with the second half weighted campus openings. We thus
prefer to remain on the sidelines until we see substantial
enrollment growth and improvement in the overall industry
outlook.
MCDONALDS CORP (MCD): Free Stock Analysis
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STRAYER EDUC (STRA): Free Stock Analysis Report
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