Strayer Education Up on Q3 Earnings Beat, Updates View
Share price of Strayer Education, Inc. (STRA) increased 6.6% on Oct 30 after the education company reported strong third-quarter 2014 results.
Strayer Education’s third-quarter 2014 adjusted earnings of 37 cents per share increased 23% year over year and surpassed the Zacks Consensus Estimate of 18 cents by 105.6%.
We believe that the strong earnings were driven by an increase in new student enrollment, lower-than-expected decline in revenue per student, and a decline in total cost and expenses.
Strayer Education, Inc - Earnings Surprise | FindTheBest
Total revenue in the quarter fell 8% from the comparable prior-year quarter to $100.8 million due to a decline in total enrollment and revenue per student in the quarter. Total revenue however beat the Zacks Consensus Estimate of $99 million by 1.98%, due to lower than expected enrollment decline.
Revenue per student decreased 2.8% during the quarter, better than a 4.7% decline in the previous quarter. The moderating decline in revenue per student was driven by higher student retention and lower drop out rates.
Enrollment Discussion
Strayer University’s total enrollment declined 2% to 42,189 students for the fall term due to a 4% decline in continuing student enrollments. However, new enrollments rose 5%, higher than 2% increase in the prior quarter.
Strayer total enrollment have been declining due to continued unemployment, overall economic downturn and a subsequent decline in student demand. However, the company has been taking several initiatives to drive new enrollments. This includes a 20% cut in tuition rates of undergraduate students for the winter term of 2014.
The company also introduced the Graduation Fund in mid-2013, which offers one free course for every three programs completed successfully. These initiatives have resulted in improved starts for the last few quarters.
Operating margin rose 310 basis points to 9.1% due to cost saving measures. Bad debt expense as a percentage of revenues was 3.6% in the third quarter, lower than 4.5% in the year-ago quarter but higher than 3.2% in the prior quarter.
Other Financial Details
Strayer Education ended the quarter with cash and cash equivalents of $150.5 million as of Sep 30, 2014 compared with $136.1 million as of Jun 30, 2014.
In the third quarter of 2014, the company did not repurchase any shares. As of Sep 30, 2014, the company had $70 million worth of shares left under its share repurchase authorization.
Fiscal 2014 Outlook
On the back of higher student retention and lower drop out rate, Strayer Education now expects revenue per student to decline below 4%, compared to the prior expected range of 4% to 5% decline for full year 2014. In the fourth quarter, Strayer expects revenue per student to decline between 4% and 5%.
Total enrollments are expected to decline about 2% in 2014.
Fiscal 2015 Outlook
On the back of the recent new enrollment trends, the company expects total enrollment to turn positive in the first or second quarter of 2015. Revenues are expected to turn positive about two quarters later. Revenues for full year 2015 are expected to be flat to down 2%, better than the prior expectation of a low single digits decline. Operating expenses are expected to be flat to down 2%.
Strayer Education currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the education industry include GP Strategies Corp. (GPX), Capella Education Company (CPLA) and Grand Canyon Education Inc. (LOPE). All the three education companies sport a Zacks Rank #1 (Strong Buy).
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