It has been about a month since the last earnings report for Strategic Education (STRA - Free Report) . Shares have added about 0.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
Strategic Education (STRA - Free Report) Q4 Earnings Beat, Enrollment High
Strategic Education, Inc. or SEI reported better-than-expected results in fourth-quarter 2018. The positive performance was mainly backed by strong top-line numbers across its segments, given higher enrollment.
The company reported adjusted earnings of $1.56 per share, surpassing the consensus mark of $1.51 by 3.3%. Also, the reported figure increased 43.1% from $1.09 per share recorded in the year-ago quarter.
Total revenues of $242.1 million surpassed the consensus estimate of $236 million by 2.6%. Notably, the reported figure jumped 104% from the prior-year level of $118.7 million. Meanwhile, adjusted revenues (i.e. revenues excluding deferred revenue adjustment) increased an impressive 106.1% from the prior-year quarter to $244.6 million.
SEI currently operates in three reportable segments: Strayer (52.6% of the total revenues), Capella (45.9%) and Non-Degree Programs (1.5%).
Strayer Segment: The Strayer segment is comprised of Strayer University, which includes programs offered through the Jack Welch Management Institute.
Strayer University’s revenues grew 8.5% year over year to $127.5 million. Total enrollment grew 8.9% from the year-ago level to 52,447 students. New student enrollments rose 9.2% and continuing student enrollments increased 8.9% from the year-ago quarter. The segment’s operating margin increased 30 bps during the quarter.
Notably, during the reported quarter, Strayer opened new campuses in El Paso, TX and Decatur, AL. Moreover, it is likely to open six to eight additional campuses in 2019.
Capella Segment: The Capella segment consists solely of Capella University.
The segment’s fourth-quarter revenues came in at $111.1 million, backed by higher enrollment and increasing revenue-per-learner. Meanwhile, the reported figure includes a purchase accounting adjustment of $2.5 million as deferred revenues at a fair value, as part of the merger. Revenues, excluding purchase accounting adjustment, came in at $113.7 million.
Total enrollment at the University grew 2.4% from the year-ago quarter to 38,409 students. New student enrollment increased 10.6%, with continuing student enrollment growth of 1% year over year. The upside was mainly driven by improved performance of FlexPath, which comprises 28% of Capella University’s Bachelor and Master’s degrees total enrollment.
Its adjusted operating margin was 20.4% in the reported quarter. Meanwhile, the University is planning to open Capella University learner support centers in Orlando, FL and Atlanta, GA within the first half of 2019.
Non-Degree Programs Segment: The Non-Degree Programs segment comprises Hackbright Academy, DevMountain, The New York Code + Design Academy and Sophia.
Revenues in the segment jumped nearly 2.7 times to $3.5 million from the year-ago figure of $1.3 million, backed by higher revenues from DevMountain, Hackbright Academy and Sophia.
Adjusted operating margin in the reported quarter was 18.6%, up 160 bps from 17% in the year-ago period. Adjusted EBITDA also increased a notable 107% from a year ago to $59.2 million.
As of Dec 31, 2018, it recorded cash and cash equivalents of $311.7 million compared with $155.9 million at 2017-end.
In full-year 2018, the company provided $46.9 million cash from operating activities versus $56.2 million in the year-ago period. The decline was mainly due to merger-related cash payments. Capital expenditures totaled $27.5 million compared with $18.1 million in the prior-year period.
Full-Year 2018 Highlights
SEI’s full-year adjusted earnings came in at $4.75 per share, up 52.7% from the year-ago figure of $3.11. Revenues also increased 39.4% from the year-ago level to $634.2 million. Adjusted revenues grew 45.7% on a year-over-year basis to $662.9 million. In 2018, its adjusted operating margin was up 230 bps to 14.7% from 12.4% a year ago. Adjusted EBITDA also improved 57.5% to $139.7 million from $88.7 million in 2017.
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 -8.33% due to these changes.
Currently, Strategic Education has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Strategic Education has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.