Strayer Tops, Enrollment Falls - Analyst Blog

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Strayer Education, Inc. ( STRA ), a for-profit education company, recently posted fourth-quarter 2011 results. The quarterly earnings of $2.30 per share topped the Zacks Consensus Estimate of $2.26, but plunged 16% from $2.73 in the year-ago quarter. 

Management had earlier forecasted 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 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.

Operating income for the quarter plummeted 23% to $45.4 million, whereas, operating margin contracted 520 basis points to 29.1%.

Let's Unveil the Picture

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 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 dipped 13%.

Strayer Education also said that enrollment at mature campuses (62 in operations for more than 3 years) tumbled 15% to 40,522, whereas enrollment at new campuses (30 in operations for 3 years or less) jumped 18% to 5,041. The company plans to open 8 new campuses in fiscal 2012.

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 then graduating find difficulties 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 student's grant. These days the companies are also adopting stringent admissions criteria.

Another for-profit education company, Capella Education Company ( CPLA ) recently delivered fourth-quarter 2011 earnings of 91 cents a share that dropped 16.5% from $1.09 earned in the prior-year quarter due to fall in students' enrollment. The company projects total enrollment to decline between 5% and 6% in the first quarter of 2012.

Other Financial Details

Strayer Education ended the quarter with cash and cash equivalents of $57.1 million, total term loan of $97.5 million, outstanding revolving credit facility of $20 million and shareholders' equity of $42.3 million. During fiscal 2011, the company generated $154.4 million in cash from operating activities and incurred capital expenditures of $30 million.

During the quarter, Strayer Education repurchased 211,300 shares at a price of $94.64 per share, amounting to $20 million. The company bought back 1,581,400 shares at a price of $128.15 per share, aggregating $202.7 million during the year. As of December 31, 2011, Strayer Education had $80 million at its disposal under its share repurchase authorization. The company paid a total dividend of $49.1 during the year.

Strolling through Guidance

Strayer Education, which owns Strayer University, said it now expects first-quarter 2012 earnings between $2.07 and $2.09 per share based on the enrollment for the 2012 winter term and investment plans for new campuses. The projected earnings fell short of the current Zacks Consensus Estimate of $2.17.

Zacks Rank Defining Neutral Stance

Currently, we have a long-term 'Neutral' rating on the stock. Strayer Education, which competes with Apollo Group Inc. ( APOL ) and Corinthian Colleges Inc. ( COCO ), holds a Zacks #4 Rank that translates into a short-term 'Sell' recommendation and well defines the waning students' enrollment.


 
APOLLO GROUP ( APOL ): Free Stock Analysis Report
 
CORINTHIAN COL ( COCO ): Free Stock Analysis Report
 
CAPELLA EDUCATN ( CPLA ): 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 , COCO , CPLA , STRA

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