Strayer a Buy, Post-Report

Strayer Education (STRA - Analyst Report), which offers undergraduate and graduate degree programs through Strayer University and Strayer University Online, reported financial results for the first quarter ending March 31, 2009. Quarterly earnings of $2.07 per diluted share were $0.10 above expectations due to a lower number of students dropping out after the start of the term.

Given the strength of the first quarter's result and management's guidance of 1.95 to $1.95 per diluted share for the second quarter, we have raised our 2009 earnings estimate 5.5% to $7.27. We reiterate our Buy rating on Strayer Education.

Revenue growth continues to be robust at 28% in the first quarter, and new student enrollment was above expectations, increasing 22% from the prior year to 46038 students. Management's plan has been to open 11 new campuses and a second Global Online Operations Center in 2009. The first two campuses in Augusta, GA and Huntsville, AL opened for the winter term. For the spring term, the company opened three campuses in the new markets of Allentown, PA; Charleston, WV; and Salt Lake City, UT.

In addition, the company has opened two new campuses for the summer term in Cincinnati and Columbus, both in Ohio. The second Global Online Operations Center (located in Salt Lake City, Utah) has already been opened in preparation for the 2009 summer term.

Not only does management have a strong growth strategy, but educational companies ought to benefit from the current economic environment. A large pool of potential new students is being created. These new students are both employees who fear losing their jobs (and therefore want to increase their skills by attending colleges geared towards working adults, like Strayer University) and the recently unemployed, who can use this time to increase their skills by attending post secondary schools.