Earnings Preview: Strayer Education (STRA)

Strayer Education (STRA) is scheduled to report its fourth-quarter 2010 financial results on February 17, 2011. The current Zacks Consensus Estimate for the quarter is $2.64 per share. For the quarter under review, revenue is $173 million, according to the Zacks Consensus Estimate.

Third-Quarter 2010, a Synopsis

Strayer Education posted better-than-expected third-quarter 2010 results on the heels of an increase in students’ enrollment. The quarterly earnings of $1.72 per share beat the Zacks Consensus Estimate of $1.70 and jumped 42% from $1.21 in the year-ago quarter.

Management said that total revenue for the quarter came in at $147.6 million, slightly ahead of the Zacks Consensus Revenue Estimate of $146 million, but grew 29% from the prior-year quarter, buoyed by a rise in enrollment and a 5% increase in tuition fees, effective January 2010.

The educational institute said that total enrollment for the 2010 fall term jumped 12% to 60,711 students. The company informed that total campus-based students rose 11% to 54,347, and online students surged 18% to 6,364. However, the company informed that new student enrollment dropped 2%.

Fourth-Quarter 2010 Zacks Consensus

Analysts considered by Zacks, expect Strayer Education to post fourth-quarter 2010 earnings of $2.64 per share. The current Zacks Consensus Estimate reflects a growth of 13.8% from the prior-year quarter earnings. The current Zacks Consensus Estimate for the quarter ranges between $2.39 and $2.68.

Zacks Agreement & Magnitude

Of the 16 analysts following the stock, none of the analysts have revised their estimates in the last 7 or 30 days, leaving the Zacks Consensus Estimate unchanged.

Positive Earnings Surprise History

With respect to earnings surprises, Strayer Education has topped the Zacks Consensus Estimate over the last four quarters in the range of 0.9% to 2.7%. The average remained at 1.6%. This suggests that Strayer Education has beaten the Zacks Consensus Estimate by an average of 1.6% in the last four quarters.

Bearish on Strayer Education

The educational institute, which offers degree programs in business administration, accounting, information technology, education and criminal justice, witnessed a 20% fall in new student enrollment for the winter 2011 term compared with a 16% growth experienced in the same period last year.

Given the decline in new student enrollment for the winter 2011 term, Strayer Education provided four hypothetical situations, but did not give any official guidance.

Strayer Education now projects that if annual enrollment drops 5%, its revenue may remain flat or fall 1% and fiscal 2011 earnings may lie between $7.50 and $7.70 per share. If enrollment rises 5%, management hinted that revenue may witness a growth of 9% to 10% and earnings may fall in the range of $10.10 to $10.30.

The Arlington, Virginia-based Strayer Education also notified that if enrollment remains flat with the 2010 level, revenue would register a growth of 4% to 5% and earnings would be in the range of $8.80 to $9.00 per share.

The company also hinted that if enrollment rises by 13%, revenue may increase between 17% and 18% and earnings would be in the range of $11.30 to $11.50 per share, as projected earlier.

The current potential risk looming over the education sector is the regulation proposed by the Department of Education. The Department has proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The institutions are under the scanner due to the rise in the default rate of student loans, and are now being asked to submit information relating to recruitment procedures and the use of student’s grant.

Currently, we have a long-term ‘Underperform’ rating on the stock. Strayer Education, which competes with Apollo Group Inc. (APOL) and Corinthian Colleges Inc. (COCO), holds a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ recommendation, and correlates with our long-term view.

STRAYER EDUC (STRA): Free Stock Analysis Report

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