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Strategic Education (STRA) Up 3.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Strategic Education (STRA - Free Report) . Shares have added about 3.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Strategic Education due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Strategic Education Q3 Earnings Meet, Revenues Miss

Strategic Education reported third-quarter 2020 results, wherein the company’s earnings met analysts’ expectations but revenues missed the same. On a year-over-year basis, both the metrics declined, thanks to lower enrollment, revenue-per-student and margin at Capella University.

It reported adjusted earnings of $1.18 per share, which met the Zacks Consensus Estimate but decreased 7.8% from the year-ago quarter.

Total revenues of $239 million missed the consensus estimate by 0.9%. Notably, the reported figure also declined 1.1% from the prior-year level.

Segment Details

SEI currently operates in two reportable segments: Strayer (accounting for 53.7% of total third-quarter 2020 revenues) and Capella (46.3%).

Strayer University: Strayer University’s revenues grew 1.2% year over year to $128.4 million due to lower enrollment and revenue-per-student. Total enrollment dropped 1% from the year-ago level to 48,774 students. Enrollment of new students declined 28% but that of continuing students rose 6% from the year-ago quarter. Nonetheless, the segment’s quarterly operating margin increased 400 basis points (bps) to 17.8%.

Capella University: The segment’s quarterly revenues came in at $110.6 million, reflecting 1% year-over-year decline due to lower revenue-per-student.

Total enrollment at the university grew 4% from the year-ago quarter to 40,268 students. New and continuing student enrollment both increased 4% year over year. The upside was mainly driven by improved performance of FlexPath, which comprises 40% of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Its operating margin came in at 13.5% for the reported quarter, down 340 bps from the year-ago level.

Operating Highlights

Adjusted operating margin for the reported quarter was 15.8%, up 50 bps year over year. Adjusted EBITDA was $52.4 million for the reported period, up 3.1% year over year.

Financial Details

As of Sep 30, 2020, SEI had cash, cash equivalents, and marketable securities of $738.3 million, up from $525.3 million at second quarter-end and $454.6 million at December 2019-end.

For the third quarter, consolidated bad debt expense as a percentage of revenues was 4.7% compared with 5% a year ago.

Strategic Education also closed the refinancing of its revolving credit facility on Nov 3, 2020 for a total commitment of $350 million for a period of five years, with materially the same terms as under the prior revolving credit facility. The company borrowed $141.8 million on the facility on Nov 3.

Update on Pandemic

SEI is reopening corporate offices in Minneapolis, Minnesota and Herndon, Virginia for a small number of volunteer employees. It has also reopened three campuses in Lithonia and Augusta, Georgia and Arlington, Virginia to assist international students and eventually all students. Meanwhile, it has also started implementing the restructuring plan that includes both voluntary and involuntary employee terminations in order to lower ongoing operating costs to align with the changes in enrollment.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Strategic Education has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Strategic Education has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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