Strayer EPS Dips Y/Y on Enrollments - Analyst Blog

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Strayer Education, Inc. ( STRA ), 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 term.

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 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 admissions criteria.

 

Another for-profit education company, Apollo Group Inc. ( APOL ) 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.

Guidance

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' rating).


 
APOLLO GROUP ( APOL ): Free Stock Analysis Report
 
STRAYER EDUC ( STRA ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: APOL , STRA

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