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Why Is Strategic Education (STRA) Up 2.9% Since Last Earnings Report?

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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 2.9% 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 Q4 Earnings & Revenues Lag Estimates

Strategic Education or SEI reported fourth-quarter 2020 results, wherein earnings and revenues missed analysts’ expectations. On a year-over-year basis, earnings declined, primarily due to the issuance of new shares to facilitate the acquisition of Torrens University and associated assets in Australia and New Zealand.

Notably, the company announced closure of the acquisition of the Australia and New Zealand academic operations from Laureate Education, Inc. on Nov 3, 2020.

It reported adjusted earnings of $1.39 per share, which not only missed the Zacks Consensus Estimate of $1.51 but also decreased 34.7% from the year-ago quarter.

Also, total revenues of $267.5 million missed the consensus estimate by 2%. However, the reported figure grew 1.4% from the prior-year level.

Segment Details

SEI currently operates through three reportable segments: Strayer (accounting for 46.9% of total fourth-quarter 2020 revenues), Capella (44.3%) and Australia/New Zealand Segment (8.7).

Strayer University: Strayer University’s revenues decreased 13.2% year over year to $125.5 million due to lower enrollment and revenue-per-student. Total enrollment dropped 9% from the year-ago level to 50,773 students. Notably, the segment’s quarterly operating margin decreased 560 basis points (bps) to 20.1%.

Capella University: The segment’s quarterly revenues came in at $118.6 million, reflecting a 0.5% year-over-year decline due to lower revenue-per-student.

Total enrollment at the university grew 5% from the year-ago quarter to 41,073 students. The upside was mainly driven by improved performance of FlexPath, which comprises 32% of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Its operating margin came in at 20.2% for the reported quarter, down 130 bps from the year-ago level.

Australia/New Zealand: The newly-acquired segment’s quarterly revenues came in at $23.4 million. Loss from operations was $13.3 million in the fourth quarter of 2020.

Operating Highlights

Adjusted operating margin for the reported quarter was 1.3% compared with 14.1% of revenues in fourth-quarter 2019. Adjusted EBITDA (excluding a purchase adjustment) was $34.6 million for the reported period, down 45.3% from $63.2 million in fourth-quarter 2019.

Financial Details

As of Dec 31, 2020, SEI had cash, cash equivalents, and marketable securities of $195.1 million, down from $738.3 million at third quarter-end and $454.6 million at December 2019-end.

For the fourth quarter, consolidated bad debt expenses, as a percentage of revenues, was 5.5% compared with 5% a year ago.

On Dec 31, 2020, the company had $141.8 million under its revolving credit facility.

Notably, SEI announced a regular quarterly cash dividend of 60 cents per share of common stock, which will be paid on Mar 15, 2021, to shareholders of record as of Mar 8, 2021.

2020 Highlights

Total revenues in 2020 came in at $1,027.7 million compared with $997.1 million in 2019, up 3.1%.

In 2020, operating margin slightly dropped to 10.6% from 11.1% in 2019.

Total cash provided by operating activities decreased to $142.9 million from $202.1 million in 2019.

Adjusted earnings per share in 2020 came in at $6.68 compared with $6.67 cents in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.23% due to these changes.

VGM Scores

At this time, Strategic Education has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise 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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