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Strategic Education (STRA) Shares Up 11% on Q1 Earnings Beat

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Shares of Strategic Education, Inc. or SEI (STRA - Free Report) gained 10.6% during Wednesday’s trading session, following better-than-expected results in first-quarter 2019. The positive performance was mainly backed by strong top-line numbers across its segments, given higher enrollment and lower operating expenses.

The company reported adjusted earnings (on a pro-forma basis) of $1.66 per share, surpassing the Zacks Consensus Estimate of $1.43 by 16.1%. Also, the reported figure increased 29.1% from the year-ago quarter.

Total revenues of $246.5 million surpassed the consensus estimate of $240 million by 2.7%. Notably, the reported figure also jumped 7.9% (on a pro-forma basis) from the prior-year level.

Segment Details

SEI currently operates in three reportable segments: Strayer (accounting for 51.9% of the total revenues), Capella (46.5%) and Non-Degree Programs (1.5%).

Strayer Segment: The Strayer segment consists of Strayer University, which includes programs offered through the Jack Welch Management Institute.

Strayer University’s revenues grew 11.1% year over year to $128.1 million. Total enrollment grew 11.5% from the year-ago level to 51,479 students. Enrollment of new students rose 13.2% and that of continuing students increased 11.1% from the year-ago quarter. The segment’s adjusted operating margin also increased 390 basis points (bps) during the quarter.

Notably, during the reported quarter, Strayer opened new campuses in Mobile, AL and Fort Worth, TX. It has plans to open four-six additional campuses through the remainder of 2019.

Capella Segment: The Capella segment consists solely of Capella University.

The segment’s first-quarter revenues came in at $114.7 million (up 5.6% year over year), backed by higher enrollment and increasing revenue-per-learner.

Total enrollment at the University grew 2.9% from the year-ago quarter to 39,271 students. New student enrollment also increased 14.7%, with continuing student enrollment growth of 0.7% year over year. The upside was mainly driven by improved performance of FlexPath, which comprises 30% of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Its adjusted operating margin expanded 330 bps in the reported quarter. Meanwhile, the University is planning to open Capella University learner support centers in Atlanta, GA in the second quarter and Orlando, FL in the third quarter.

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 declined 17.6% from the year-ago figure to $3.8 million.

Strategic Education Inc. Price, Consensus and EPS Surprise

Strategic Education Inc. Price, Consensus and EPS Surprise | Strategic Education Inc. Quote

Operating Highlights

Adjusted operating margin in the reported quarter was 19.6%, up 430 bps year over year. Adjusted EBITDA also increased a notable 59.4% from a year ago to $24.8 million. Adjusted operating expenses grew by a meager 2.5% to $198.2 million in the quarter.

Financial Details

As of Mar 31, 2019, it recorded cash and cash equivalents of $352.4 million compared with $311.7 million at 2018-end.

In the quarter, the company's cash provided by operating activities was $58.7 million versus $17 million in the year-ago period.

Zacks Rank & Key Picks

Currently, SEI carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the Zacks Schools industry include Career Education Corporation CECO, K12 Inc. LRN and Lincoln Educational Services Corporation LINC, each carrying a Zacks Rank #2 (Buy). You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Career Education is expected to record an EPS growth rate of 9.5% in 2019.

K12’s earnings per share are expected to increase 23.5% in 2019.

Lincoln Educational Services has an expected earnings growth rate of 148.2% for the current year.

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