Share price of Strayer Education, Inc. (STRA) declined almost 9% on Feb 6 as the education company reported lower revenues and enrollment levels in the fourth quarter of 2014. The company could not sustain the improvement in new enrollments that it saw in the previous quarter as starts growth was flat in the quarter.
Despite beating the Zacks Consensus Estimate of $1.18 by 2.5%, Strayer Education’s fourth-quarter 2014 adjusted earnings of $1.21 per share decreased 8.3% year over year on soft revenues. We believe the earnings beat was driven by a decline in bad debt expenses.
Total revenue in the quarter fell 6% from the comparable prior-year quarter to $116.1 million due to a decline in total enrollment and revenue per student in the quarter. Total revenue however beat the Zacks Consensus Estimate of $113 million by 2.8%.
Revenue per student decreased 4.2% during the quarter, within the company’s expected range of 4% to 5% decline.
Enrollment Discussion
Strayer University’s total enrollment declined 1% to 40,728 students for the winter term due to a 1% decline in continuing student enrollments. However, new enrollments/starts were flat year over year, lower than a 5% increase in the prior quarter.
Strayer’s total enrollment has been declining due to continued unemployment and a subsequent decline in student demand. However, the company has been taking several initiatives to drive new enrollments. The company introduced the Graduation Fund in mid-2013, which offers one free course for every three programs completed successfully. These initiatives have resulted in improved starts for the last few quarters. However, the flat new enrollments in the quarter indicate that the improving trend could not be sustained.
Adjusted operating margin decreased 30 basis points to 19.5% due to cost saving measures. Bad debt expense as a percentage of revenues was 4.0% in the third quarter, lower than 4.8% in the year-ago quarter but higher than 3.6% in the prior quarter.
Other Financial Details
Strayer Education ended the quarter with cash and cash equivalents of $162.3 million as of Dec 31, 2014, compared with $150.5 million as of Sep 30, 2014.
In the fourth quarter of 2014, the company did not repurchase any shares. As of Dec 31, 2014, the company had $70 million worth of shares left under its share repurchase authorization.
Fiscal 2014
Besides missing the Zacks Consensus Estimate of $4.34 by 5.1%, Strayer Education’s fiscal 2014 adjusted earnings of $4.12 per sha decreased 7.8% year over year as its revenues continued to remain soft.
Total revenue in 2014 fell 11.4% from the year-ago period to $446.0 million due to a decline in total enrollment and revenue per student. However, total revenue beat the Zacks Consensus Estimate of $443 million by 0.7%.
Outlook for 2015
Strayer maintained its outlook for 2015. On the back of the recent enrollment trends, the company expects total enrollment to turn positive in the first or second quarters of 2015. Revenues are expected to turn positive about two quarters later. Revenues for 2015 are expected to be flat to down 2%. Operating expenses are expected to be flat to up 2%. Revenue per student is expected to decline 4% – 5% in 2015.
Strayer Education carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the education industry include Universal Technical Institute, Inc. (UTI), Bright Horizons Family Solutions, Inc. (BFAM) and Capella Education Co. (CPLA). While Universal Technical Institute sports a Zacks Rank #1 (Strong Buy), Bright Horizons Family Solutions and Capella Education hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment