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Strategic Education's (STRA) Enrollment High Amid ANZ Decline
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Strategic Education, Inc. (STRA - Free Report) has been benefiting from solid enrollment trends in U.S. Higher Education (“USHE”) and Education Technology Services segments, favorable pricing and innovative programs.
Shares of STRA have gained 21.5% in the past three months compared with the Zacks Schools industry’s 22.8% growth. Although the shares have slightly underperformed its industry, STRA’s competency-based learning model and direct assessment capabilities, strong demand in USHE and solid liquidity bode well.
However, low contributions from the Australia/New Zealand (ANZ) segment and seasonal fluctuations are major headwinds for this Zacks Rank #3 (Hold) company.
Image Source: Zacks Investment Research
Let's dig into the factors substantiating its growth trajectory despite prevailing woes.
Factors Driving the Growth
Solid Enrollment: Strategic Education is gaining from a robust demand environment and consistent year-over-year growth in university inquiries. During the third quarter of 2023, the company witnessed solid enrollment growth in USHE and Education Technology Services segments.
Student enrollment at USHE increased 9.9% from the year-ago quarter’s level to 82,548 students. FlexPath’s enrollment was 22% of USHE enrollment compared with 21% in the year-ago quarter.
Sophia Learning’s average total subscribers increased by approximately 38% from the prior-year period’s levels. Employer-affiliated enrollment was 27.8% of USHE’s enrollment compared with 25.3% in the year-ago period.
Higher Pricing to Boost Earnings: STRA has been focusing on its pricing strategies to increase and maintain the growth momentum. During the third quarter of 2023, pricing strategy contributed to the company’s growth. The increase in revenue per student in the quarter is attributable to the planned pricing increase. This factor resulted in the revenue growth of 3.4% year over year in the Australia/New Zealand segment on a constant-currency basis.
The Zacks Consensus Estimate of earnings is currently pegged at $3.41 per share for 2023, which indicates 35.9% year-over-year growth. The same for 2024 reflects 26.8% year-over-year growth.
Diverse Programs: The company believes in providing various innovative programs to improve student outcomes. Under the USHE segment, Capella University indulges in continuous innovation and course updates that expand its product portfolio, which, in turn, boosts enrollments and drives long-term growth. One of these innovations is FlexPath, which continues to be one of the firm’s fastest-growing programs. It allows students to focus on leveraging their skills and knowledge gained during professional hours.
In third-quarter 2023, FlexPath enrollments represented 22% of all USHE enrollments, up from 21% reported in the prior-year period.
As of Sep 30, 2023, Workforce Edge had 60 corporate agreements, collectively employing approximately 1,410,000 employees. The company started to see some initial progress in enrollments from Workforce Edge into SEI institutions. In the first nine months of 2023, total enrollments from Workforce Edge were 1200.
Hurdles to Pullback
Softness in the ANZ Segment: In the first nine months of 2023, the ANZ segment displayed dismal performance compared with the prior-year period’s levels. Revenues in the segment decreased 3.9% year over year, primarily due to the timing of the academic term start dates and unfavorable foreign currency exchange impacts.
Student enrollment was down 1.2%, 4.6% and 6.3% in the third, second and first quarters of 2023, respectively versus the prior year.
Seasonal Fluctuations, High Costs: The company is exposed to seasonal fluctuations, which cause its operating results to fluctuate from quarter to quarter. Historically, quarterly revenues and income have been lowest in the third quarter (July through September) because fewer students are enrolled during the summer months.
Significant expenses were incurred in the third quarter in preparation for peak enrollment in the fourth quarter (October through December), including investments in online and campus infrastructure necessary to support increased usage.
Image: Bigstock
Strategic Education's (STRA) Enrollment High Amid ANZ Decline
Strategic Education, Inc. (STRA - Free Report) has been benefiting from solid enrollment trends in U.S. Higher Education (“USHE”) and Education Technology Services segments, favorable pricing and innovative programs.
Shares of STRA have gained 21.5% in the past three months compared with the Zacks Schools industry’s 22.8% growth. Although the shares have slightly underperformed its industry, STRA’s competency-based learning model and direct assessment capabilities, strong demand in USHE and solid liquidity bode well.
However, low contributions from the Australia/New Zealand (ANZ) segment and seasonal fluctuations are major headwinds for this Zacks Rank #3 (Hold) company.
Image Source: Zacks Investment Research
Let's dig into the factors substantiating its growth trajectory despite prevailing woes.
Factors Driving the Growth
Solid Enrollment: Strategic Education is gaining from a robust demand environment and consistent year-over-year growth in university inquiries. During the third quarter of 2023, the company witnessed solid enrollment growth in USHE and Education Technology Services segments.
Student enrollment at USHE increased 9.9% from the year-ago quarter’s level to 82,548 students. FlexPath’s enrollment was 22% of USHE enrollment compared with 21% in the year-ago quarter.
Sophia Learning’s average total subscribers increased by approximately 38% from the prior-year period’s levels. Employer-affiliated enrollment was 27.8% of USHE’s enrollment compared with 25.3% in the year-ago period.
Higher Pricing to Boost Earnings: STRA has been focusing on its pricing strategies to increase and maintain the growth momentum. During the third quarter of 2023, pricing strategy contributed to the company’s growth. The increase in revenue per student in the quarter is attributable to the planned pricing increase. This factor resulted in the revenue growth of 3.4% year over year in the Australia/New Zealand segment on a constant-currency basis.
The Zacks Consensus Estimate of earnings is currently pegged at $3.41 per share for 2023, which indicates 35.9% year-over-year growth. The same for 2024 reflects 26.8% year-over-year growth.
Diverse Programs: The company believes in providing various innovative programs to improve student outcomes. Under the USHE segment, Capella University indulges in continuous innovation and course updates that expand its product portfolio, which, in turn, boosts enrollments and drives long-term growth. One of these innovations is FlexPath, which continues to be one of the firm’s fastest-growing programs. It allows students to focus on leveraging their skills and knowledge gained during professional hours.
In third-quarter 2023, FlexPath enrollments represented 22% of all USHE enrollments, up from 21% reported in the prior-year period.
As of Sep 30, 2023, Workforce Edge had 60 corporate agreements, collectively employing approximately 1,410,000 employees. The company started to see some initial progress in enrollments from Workforce Edge into SEI institutions. In the first nine months of 2023, total enrollments from Workforce Edge were 1200.
Hurdles to Pullback
Softness in the ANZ Segment: In the first nine months of 2023, the ANZ segment displayed dismal performance compared with the prior-year period’s levels. Revenues in the segment decreased 3.9% year over year, primarily due to the timing of the academic term start dates and unfavorable foreign currency exchange impacts.
Student enrollment was down 1.2%, 4.6% and 6.3% in the third, second and first quarters of 2023, respectively versus the prior year.
Seasonal Fluctuations, High Costs: The company is exposed to seasonal fluctuations, which cause its operating results to fluctuate from quarter to quarter. Historically, quarterly revenues and income have been lowest in the third quarter (July through September) because fewer students are enrolled during the summer months.
Significant expenses were incurred in the third quarter in preparation for peak enrollment in the fourth quarter (October through December), including investments in online and campus infrastructure necessary to support increased usage.
Key Picks
Some better-ranked stocks from the Zacks Consumer Discretionary sector are:
Grand Canyon Education, Inc. (LOPE - Free Report) currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 9.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LOPE’s 2023 sales and EPS suggests an improvement of 7.1% and 17.1%, respectively, from the year-ago period’s levels.
Perdoceo Education (PRDO - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 15.6%, on average.
The Zacks Consensus Estimate for PRDO’s 2023 sales and EPS suggests growth of 26.4% and 1.9%, respectively, from the year-ago period’s levels.
Stride, Inc. (LRN - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 44.3% on average.
The Zacks Consensus Estimate for LRN’s 2024 sales and EPS indicates a rise of 9.1% and 34.7%, respectively, from the year-ago period’s levels.