Strategic Education, Inc. STRA is poised to benefit from strong enrollment trends and flexible educational programs. Moreover, robust performances of Strayer and Capella segments added to the bliss.
Shares of the for-profit education company have gained 9.4% in the past month, outperforming the Zacks Schools industry’s 2.8% rally. The company has been benefitting from Strayer and Capella Universities’ convenient, accessible and flexible educational programs, thereby boosting enrollment and revenues.
However, declining revenue per student at Strayer University due to tuition cuts and Seasonal fluctuations in student enrollment is concerning.
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Let’s delve into the factors that substantiate the company’s Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Catalysts
High Enrollment: Strategic Education, which shares space with Adtalem Global Education Inc ATGE, continues to focus on introducing programs and specializations to improve student outcome. On continuous innovation and course updates in its product portfolio, the company expects to boost enrollment and drive long-term growth. In the third quarter of 2019, student enrollment at Strayer University increased 11% year over year to 50,582. Also, student enrollment for the period increased 4% and continuing student enrollment for the period rose 13%. Student enrollment at Capella University increased 2% year over year to 38,451. Student enrollment for the third quarter 2019 increased 7% and continuing student enrollment for the period increased approximately 1%.
Affordable & Flexible Educational Programs: In order to help students with high fees and related costs, Strategic Education introduced graduation funds in the middle of 2013, which offer financial assistance to students during the final year of their programs. The company also initiated use of more advanced technology innovations, including artificial intelligence and automation, which will help reduce operating costs and thus improve its ability to support lower tuition expenses.
Strategic Education benefits from its competency-based learning model and direct assessment capability programs. FlexPath, which is one of these programs, continues to be one of the fastest-growing programs of the company as it helps students with lower tuition costs, reduced time of completion and increased flexibility. In the third quarter of 2019, FlexPath continued to be a significant driver of new and total enrollment growth, contributing 33% of Capella University’s bachelor’s and master’s degrees total enrollment.
Concerns
Although Strategic Education generated higher revenue per student in the first half of 2019, it expects the Strayer segment’s revenue per student to be flat to slightly down from the year-ago period due to excessive use of scholarships and ongoing mix shift to lower-paying corporate-sponsored students. However, higher enrollment and mix shift to lower-cost FlexPath programs are expected to offset the same.
Moreover, seasonal fluctuations in student enrollment and stringent regulations for federal student financial aid programs or Title IV programs pose concerns.
Key Picks
Some better-ranked stocks in the same industry are Career Education Corporation CECO and New Oriental Education & Technology Group Inc EDU, each sporting a Zacks Rank #1.
Career Education’s current-year earnings are expected to rise 29.5%.
New Oriental has three-five year expected earnings per share growth rate of 32%.
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