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On Feb 25, Zacks Investment Research upgraded Strayer Education, Inc. (STRA - Analyst Report) to a Zacks Rank #1 (Strong Buy). Strayer’s share price has been on an upswing following the release of solid fourth quarter results on Feb 21.

Why the Upgrade?

Strayer Education’s fourth-quarter 2013 adjusted earnings of $1.32 per share surpassed the Zacks Consensus Estimate of 98 cents by 34.7%. We believe that the earnings beat was due to a 7% decline in outstanding shares in the quarter as a result of significant share repurchases made in the prior quarters.  

Total revenue of $124.1 million beat the Zacks Consensus Estimate of $119 million by 4.1%.Total revenue in the quarter fell 13% from the comparable prior-year quarter due to continued weak enrollment trends, partially offset by increase in revenue per student. Revenue per student increased 5% during the quarter, owing to higher student retention rate and phasing out of the previous scholarships program.

The company began a cost reduction plan in the fourth quarter. The plan, which resulted in a charge of approximately $55 million in the fourth quarter, is expected to reduce annual operating expenses by an estimated $50 million beginning 2014.

As part of this restructuring, Strayer University closed approximately 20 physical locations predominantly in the Midwest. The completion of the restructuring will allow the company to allocate its resources in profitable areas and improve its business in the near future.   

The company is also expected to benefit from the recent changes in educational policies. The policies will improve the affordability of the programs and more students will be encouraged to opt for higher education thus providing the much needed impetus to enrollment levels.

Other Stocks to Consider

Investors interested in the education sector can also consider Apollo Educational Group Inc. (APOL - Analyst Report), New Oriental Education & Technology Group Inc. (EDU - Snapshot Report) and Xueda Education Group . All the companies have a Zacks Rank #2 (Buy).

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