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Strayer (STRA) Misses Q3 Earnings, To Merge With Capella

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Shares of Strayer Education Inc. (STRA - Free Report) rallied 9% following its third-quarter 2017 earnings release on Oct 30.

The company reported third-quarter 2017 adjusted earnings of 34 cents per share, missing the Zacks Consensus Estimate of 37 cents by 8.1%. Also, earnings increased 36% year over year.

Revenues increased 6% to $108.5 million from $102.2 million in the same quarter last year, primarily buoyed by higher enrollment which was partly offset by lower revenues per student.

Enrollment Details

Total enrollment at Strayer University increased 7% to 41,679 students from 38,813 in the prior-year quarter. New student enrollments rose 7% and continuing student enrollments increased 8%.

Strayer Education, Inc. Price, Consensus and EPS Surprise

 

 

Operating Results

Operating margin increased 290 basis points (bps) to 7.6%. Bad debt expenses, as a percentage of revenues, were 4.9% in the third quarter, reflecting a year-over-year increase of 110 bps.

Financial Details

Strayer had cash and cash equivalents of $150.5 million, as of Sep 30, 2017, compared with $129.2 million at 2016-end.

The company generated $44.4 million in cash from operating activities in the first nine months of 2017, compared with $30.1 million in the year-ago period. Capital expenditures totaled $14.6 million in the first nine months of 2017, compared with $30.1 million in the same period last year.

The company had $70 million worth of share repurchase authorization as of Sep 30, 2017. Notably, no shares were repurchased in the third quarter of 2017.

Strayer to Merge With Capella

Strayer and Capella Education Company agreed to merge in a deal valued $1.9 billion on Oct 30. The combined company will be renamed Strategic Education Inc. (STRA - Free Report) when the deal closes in the third quarter of 2018.  Post completion, Strayer’s shareholders will own approximately 52%, while Capella’s shareholders will own approximately 48% of the combined company on a fully diluted basis.

The combined entity is expected to have lower corporate expenses which the companies believe will enable them to offer more affordable programs. The companies will also be able to share their best practices, thus improving academic outcomes and services while its diversified product offering is expected to provide a more balanced revenue mix.

Strong balance sheet and enhanced cash flows of the combined company support expected annual dividend of $2 per share. The combined organization is anticipated to achieve annual cost savings of approximately $50 million. Also, it is expected to be accretive to Strayer’s earnings by approximately 20% to 25% by 2019.

Q4 Guidance

Total enrollments at Strayer University are expected to grow 6% to approximately 48,100 students from the prior-year quarter.

New student enrollments are anticipated to increase approximately 4%. Continuing student enrollments are likely to rise approximately 6%.

Zacks Rank

Strayer Education currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Peer Releases

American Public Education, Inc. (APEI - Free Report) is scheduled to report third-quarter results on Nov 7. The Zacks Consensus Estimate for quarterly earnings is pegged at 21 cents, reflecting a year-over-year decline of 39.1%.

Adtalem Global Education Inc. (ATGE - Free Report) is scheduled to release its quarterly numbers on Nov 2. The Zacks Consensus Estimate for earnings is pegged at 48 cents, reflecting a year-over-year increase of 6.7%.

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