Back to top

Image: Bigstock

Learning Model Aids Strategic Education (STRA), Enrollment Hurts

Read MoreHide Full Article

Strategic Education, Inc. (STRA - Free Report) has been banking on solid Strayer and Capella Universities’ convenient. Also, easily accessible and flexible educational programs are likely to boost enrollment and thereby revenues in the future. Notably, Capella University is continuously focused on launching new programs and specializations to improve student outcomes.

However, Strategic Education has been witnessing lower demand due to higher unemployment levels caused by the COVID-19 pandemic. So far this year, shares of the company have lost 18.9% compared with the Zacks Schools industry’s 43.9% decline.

Major Growth Drivers

Strategic Learning Model

Capella is continuously investing in the launch of new programs and specializations to improve student outcomes. Relentless innovation and course updates expand its product portfolio, thereby boosting enrollments and driving long-term growth. The company is concentrating on providing programs based on a “competency-based learning model and direct assessment capabilities”. FlexPath is one such innovation. FlexPath succeeded to be one of the quick-growing programs of Strategic Education. The program permits its students to focus on leveraging their expertise and knowledge gained during professional hours.

The Capella unit added the new Doctor of Nursing Practice program in the FlexPath learning format during the third quarter of 2020. For first-quarter 2021, FlexPath enrollment was 17% of USHE enrollment compared to 12% in the same period of 2020.

On Jun 3, Capella University announced the extension of its competency-based, direct assessment learning program — FlexPath. It will now include a Doctor of Business Administration (“DBA”) course. This new course of action will be effective from a year after the launch of Capella’s Doctor of Nursing Practice or DNP program in the FlexPath format.

Direct Assessment Ability

The Department of Education granted approvals for a small number of institutions to operate direct assessment academic programs primarily to mitigate COVID-19 impacts. Capella University operates direct assessment courses within FlexPath programs.

RightSkill offers workforce-development programs, such as retail management and technical support. The demand for RightSkill is expected to rise further with increasing demand from employers for job-ready candidates to address the skills gap in the United States.

During the fourth quarter of 2020, the company launched its new Workforce Edge product. With its coverage of Strayer and Capella Universities and schools from Noodle Partners, the company expects this platform to serve as a low-cost source of new enrollments. It also anticipates managing more than 250,000 employees’ education benefits in 2021.

Superior ROE

Strategic Education’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 8.6%. This compares favorably with the ROE of 4.8% for the industry it belongs to. This indicates efficiency in using shareholders’ funds and Strategic Education’s ability to generate profit with minimum capital usage.

Zacks Investment ResearchImage Source: Zacks Investment Research

Concerns

During first-quarter 2021, U.S. Higher Education’s (“USHE”) student enrollment fell 7% and revenues declined 11% year over year. This dismal performance is primarily driven by the ongoing performance challenges at Strayer University. Meanwhile, Strategic Education witnessed the effect of rising unemployment largely seen at Strayer as a result of undergraduate student mix, along with many first-time college students. Notably, the company anticipates new student enrollment to remain soft throughout the first nine months of 2021.

For 2021, it expects total enrollment at USHE to be down 10%.

Overall, it expects adjusted EBITDA within $245-$265 million (indicating a decline from $271.2 million a year ago) and adjusted earnings per share between $5.20 and $5.50 (suggesting a fall from $6.68 per share reported in 2020).

Furthermore, the company is subject to seasonal variations, thereby resulting in fluctuations in the operating results from quarter to quarter. In fact, quarterly revenues and income have been lowest in the third quarter (July through September) as lesser number of students are enrolled during the summer months.

Zacks Rank & Key Picks

Currently, Strategic Education carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include GP Strategies Corporation (GPX - Free Report) , Lincoln Educational Services Corporation (LINC - Free Report) and Grand Canyon Education, Inc. (LOPE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GP Strategies and Lincoln Educational’s earnings for 2021 are expected to rise 41.1% and 63.9%, respectively.

Grand Canyon Education has a three-five-year earnings per share growth rate of 15%.

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>