Strategic Education, Inc. (STRA - Free Report) or SEI has been benefiting from improving enrollment trends and underlying operating leverage. Importantly, having a strong financial basis and fully online universities, SEI is uniquely positioned to operate successfully in the ongoing pandemic situation.
Shares of this for-profit education company have rallied almost 18% over a month, outperforming the Zacks Schools industry’s 8.4% gain.
However, the coronavirus mandated lockdown and subsequent recession is a pressing concern.
Let’s delve deeper into the factors that substantiate its Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Working in Favor of the Stock?
Strong Enrollment: Both Strayer and Capella Universities have been exhibiting stellar enrollment results. Notably, Strayer University's new student enrollment growth represented the 14th consecutive quarter of growth and sixth straight year of growth in 2019. The trend continued in first-quarter 2020 as well, wherein Strayer and Capella registered growth in new student enrollment of 7% and 17%, and total enrollment of 11% and 4%, respectively.
The company's affordable and flexible programs have been supporting its enrollment growth. Strayer University is reducing the cost of its programs so as to increase their affordability. In order to encourage the completion of the programs, the company introduced graduation funds in mid-2013, which offer financial assistance to students during their final year of the programs. Additionally, Capella University’s FlexPath direct assessment model helps students via providing lower tuition costs, reduced time to completion and increased flexibility.
Focus on e-Learning in Response to Shutdown: In response to COVID-19-led shutdowns, many for-profit education companies have undertaken initiatives to reach students who aspire to complete their courses as planned, with the help of various online education platforms. In early April 2020, SEI announced free online courses with the Sophia Learning platform and collaborated with Historically Black Colleges And Universities (HBCUs). With this, SEI has extended access to its expertise and products in online learning to more students. With this, it has extended access to its expertise and products in online learning.
Today, when innovative education strategies have become an economic and social imperative for the world, SEI and HBCUs’ mission of improving the economic mobility of students is commendable. Also, classroom type education providing companies like Universal Technical Institute, Inc. (UTI - Free Report) , Lincoln Educational Services Corporation (LINC - Free Report) and Perdoceo Education Corporation (PRDO - Free Report) are cashing in on the unprecedented surge in demand for online education these days.
Solid Financial Base: Having a strong financial basis and fully online universities, SEI is uniquely positioned to operate successfully in the ongoing pandemic situation. As of Mar 31, 2020, SEI had cash, cash equivalents, and marketable securities of $506.3 million compared with $491.2 million and $420.7 million on Dec 31 and Mar 31, respectively, last year. Cash generated from operating activities was $68.7 million in the quarter, up 17% from a year ago. Cash and cash equivalents, cash generated from operating activities, as well as cash borrowed under the Amended Credit Facility will be sufficient to meet its requirements for at least the next 12 months. Notably, it has an available undrawn $250-million revolver and no debt.
Owing to financial strength, neither Strayer University nor Capella University will seek or accept supplementary financial resources from the Federal Government to deal with the impact of the coronavirus pandemic.
Hurdles to Cross
Coronavirus mandated lockdown and subsequent recession is a cause of concern. A significant and persistent decline in labor force participation rates will temporarily and negatively affect the company’s student enrollment, particularly from corporate sponsored students.
Although SEI has no plans to furlough any employees as a result of COVID-19, it is reducing operating expenses as a precautionary step. These measures include pausing new campus openings, implementing a temporary external hiring freeze except for critical faculty members, deferring other non-essential CapEx and reduced executive compensation.
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