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On Aug 23, we reiterated our Neutral recommendation on Strayer Education Inc. (STRA - Analyst Report). Despite better than expected results in the second quarter 2013, we remain on the sidelines until we see substantial enrollment growth and improvement in the overall industry environment.

Why a Neutral Recommendation?

On Jul 25, 2013, Strayer Education beat the Zacks Consensus Estimate for earnings and revenues by 2.9% and 0.8%, respectively.  Earnings and revenue were also ahead of the company guided range. We believe that the earnings and revenue beat was driven by strong revenue per student. With improving continuation rate at the graduate level, the company benefited from the shift of mix toward graduate students, which comprised 36% of the total student population in the quarter.   

However, earnings declined 23% year over year due to lower revenues. Total revenue also went down year over year due to lower enrollments.

Overall we are encouraged by Strayer’s strong brand position. Further, the company’s corporate alliances give it a competitive advantage and contribute significantly to growth. However, Strayer has been witnessing a drop in enrollment due to continued unemployment, overall economic downturn and subsequent decline in student demand. We therefore prefer to remain on the sidelines until we witness a significant improvement in enrollment and improvement in the overall industry environment

Other Stocks to Consider

Strayer Education holds a Zacks Rank #3 (Hold). Other education companies that are performing well include Capella Education Company (CPLA - Analyst Report), Grand Canyon Education, Inc. (LOPE - Snapshot Report) and TAL Education Group (XRS - Snapshot Report).  Capella has a Zacks Rank #1 (Strong Buy), while Grand Canyon and TAL Education both have a Zacks Rank #2 (Buy).

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