Strayer Education, Inc.
), an education service company, recently posted weak first quarter
2012 results with quarterly earnings of $2.09 per share. The
results were in line with the Zacks Consensus Estimate, but plunged
25% from $2.80 in the year-ago quarter due to lower enrollments.
However, the results were within the guidance range of $2.07 and
$2.09 per share.
Total revenue in the quarter dropped 13% from the prior-year
quarter to $149.5 million, due to weak enrollments. 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. Total revenue was almost in line with the Zacks
Consensus Revenue Estimate of $150 million.
Operating income in the quarter plummeted 31% to $40.9 million,
whereas, operating margin contracted 710 basis points to 27.3%.
Quarter in Detail
Strayer Education's primary asset Strayer University is an
educational institute which offers degree programs in business
administration, accounting, information technology, education,
health care, public administration and criminal justice. Total
enrollment at Strayer University for the 2012 spring term declined
9% to 50,896 students. The company informed that total campus-based
students fell 9% to 50,499 and online students slipped 6% to 5,475.
The company stated that new student enrollment increased 12%,
whereas continuing student enrollment dipped 13%.
Strayer Education also said that enrollment at mature campuses
(65 in operations for more than 3 years) tumbled 12% to 46,702,
whereas enrollment at new campuses (27 in operations for 3 years or
less) jumped 25% to 3,797. The company plans to open 8 new campuses
in fiscal 2012, out of which 4 will open in the 2012 summer
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
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 let enroll less prepared students, who after
graduating find difficulty in getting a job due to lack of talent
or 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 students'
grant. These days the companies are also adopting stringent
Another for-profit education company,
Apollo Group Inc.
) also delivered weak second quarter of 2012 earnings of 58 cents a
share on March 26 that dropped 30% from 83 cents in the prior-year
quarter due to fall in students' enrollment.
Other Financial Details
Strayer Education ended the quarter with cash and cash
equivalents of $52.7 million as compared to $57.1 million generated
in the prior quarter. Capital expenditures were $4.1 million at the
end of March 31, 2012, compared to $11.4 million at the end of
December 31, 2011.
During the quarter, Strayer Education paid a total dividend of
$11.9 million and had $80 million at its disposal under its share
repurchase authorization. The company did not repurchase shares in
the first quarter.
Strayer Education expects second quarter 2012 earnings to lie in
the range of $1.84 and $1.86 per share based on expected enrollment
for the 2012 spring term. The projected earnings fell short of the
current Zacks Consensus Estimate of $1.90 per share.
Currently, Strayer Education has a long-term 'Neutral' rating on
the stock. We hold a Zacks #3 Rank in the near term ('Hold'
APOLLO GROUP (
): Free Stock Analysis Report
STRAYER EDUC (
): Free Stock Analysis Report
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