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4 Factors That Underscore Strayer's (STRA) Solid Prospects

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Strayer Education Inc.’s (STRA - Free Report) shares have been on the move in the recent times, rallying 32.1% year to date, faring much better than the industry’s growth of just 4.8%. In fact, this for-profit education company has gained 6.5% in the past 30 days against the industry’s 10.6% decline. Also, the company has outperformed the industry in all the other time frames that we considered — 4-week, 12-week and 52-week.

Moreover, earnings estimates have moved north in the past few weeks, reflecting investors’ optimism on Strayer. Over the past 30 days, the Zacks Consensus Estimate for 2018 and 2019 earnings has increased 1.2% and 0.4%, respectively. Bullish analysts’ sentiment justifies the company’s Zacks Rank #2 (Buy) and our expectation that it will outperform in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into the factors that make this post-secondary education provider a profitable pick.



 

What Makes Strayer a Solid Pick?

Solid Growth Prospects: Strayer’s convenient, accessible and flexible educational programs are likely to boost enrollment and thereby revenues. Strayer University’s educational programs are specifically designed to meet the educational needs of working adults.

Meanwhile, usage of mobiles and computers for everyday transactions, along with demand for the professionals trained to develop web and mobile apps have been on the rise. The company’s New York Code and Design Academy (“NYCDA”) has been capitalizing on this growing demand. The introduction of web and mobile app development courses appeals to students who intend to upgrade their skills to meet the demand in the job market, thereby significantly contributing to Strayer’s top and bottom lines.

Strayer has solid growth prospects, as is evident from the Zacks Consensus Estimate for current-year earnings of $4.08 per share, which is expected to grow 31.2% year over year. Meanwhile, the company’s 2019 earnings are expected to increase 13.6%. Overall, Strayer constitutes a great pick in terms of growth investment, supported by a Growth Score of A.

The company has a three-five year expected EPS growth rate of 10%.

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. with the ticker symbol STRA 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 both 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. Strayer’s 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.

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.

Solid VGM Score: The company has an impressive VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer solid investment choices.

Other Stocks to Consider

Other top-ranked stocks in the same space include American Public Education, Inc. (APEI - Free Report) , Laureate Education, Inc. (LAUR - Free Report) and K12 Inc. (LRN - Free Report) .

American Public Education sports a Zacks Rank #1 and its earnings for the current year are likely to increase 25.6%.

Laureate, also a Zacks Rank #1 stock, is expected to witness stellar 225% earnings growth for the year.

K12 carries a Zacks Rank #2 and its earnings are expected to grow 26.7% this fiscal.

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