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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