Strayer Education Inc.’s (STRA - Free Report) shares have rallied 15.4% in the past three months, outperforming 10.3% growth of the industry it belongs to. Also, the company has outperformed the industry in each of the 12-week and 52-week time frames.
Moreover, earnings estimates have risen over the past few weeks, suggesting that sentiments on Strayer are moving in the right direction. Over the past 30 days, the Zacks Consensus Estimate for 2018 earnings rose 1.8%. Also, earnings estimates for 2019 have also inched up 2% in the same time frame. This signifies bullish analysts’ sentiments. Also, this Zacks Rank #2 (Buy) company’s solid fundamentals and expectation of outperformance in the near term raise hopes. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This post-secondary education provider has strength in several key areas. Thus, adding the stock to your portfolio seems a prudent decision.
What Might Drive the Stock Higher
Strayer-Capella Merger to Improve Earnings: Strayer and Capella Education Company agreed to merge in a deal valued at $1.9 billion. The combined company will be renamed Strategic Education Inc. (STRA - Free Report) on closure of the deal in the third quarter of 2018. Post completion, Strayer’s shareholders will own approximately 52%, while Capella will possess roughly 48% of the combined company on a fully-diluted basis. The combined organization is expected to be accretive to Strayer’s earnings by 20-25% within 2019.
The combined entity is expected to result in 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 flow of the combined company support its expected annual dividend of $2 per share. Also, it is anticipated to achieve annual cost savings of approximately $50 million.
Earnings & Revenue Strength: Strayer finished 2017 with solid revenue and enrollment growth, and the trend continued in the first quarter of 2018 as well. The company’s total revenues grew 3% on 6% growth in both new and total enrollment. In the first quarter, revenues improved 1.4% from the prior-year quarter, owing to higher winter-term enrollment. The positive enrollment trend also continued in the first quarter with new students and total enrollment up 6% each.
Meanwhile, the company anticipates total enrollments at Strayer University to grow 8% in the second quarter from the prior-year quarter. New student enrollments are anticipated to increase roughly 7%. Continuing student enrollments are likely to increase approximately 8%.
The bottom line of the company increased 4.4% to $3.11 per share in 2017 and witnessed solid 29.5% year-over-year growth in the first quarter of 2018.
The company’s EPS is expected to grow 29.6% for the current year, higher than the industry’s average projected growth of 21.8%. In 2019, Strayer is expected to come up with a solid performance, wherein its bottom line is expected to grow 14.4%.
Meanwhile, the company’s sales are expected to increase 2.8% in the current year and 6.5% for the next.
The above-mentioned tailwinds have made it a great pick in terms of Growth investment. The stock has Growth Score of A.
Superior ROE: Strayer’s return on equity (ROE) supports its growth potential. Its ROE of 18.9% compares favorably with the industry’s average of 7%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the industry are American Public Education, Inc. (APEI - Free Report) , Capella Education Company (CPLA - Free Report) and Bright Horizons Family Solutions Inc. (BFAM - Free Report) , each carrying a Zacks Rank #2.
American Public Education, Capella Education and Bright Horizons’s 2018 earnings are expected to increase 21.7%, 28.3% and 17.1%, respectively.
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