Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Strayer Education Q4 Earnings Lag, Enrollments Rise
Strayer Education reported fourth-quarter 2016 adjusted earnings of $0.95 per share, which missed the Zacks Consensus Estimate of $1.16 by 18.1%. Also, adjusted earnings decreased 21.5% year over year.
Full-year 2016 earnings came in at $2.98 per share, missing the Zacks Consensus Estimate of $3.23 and down from $3.70 reported a year ago.
Revenues increased 5% to $119.3 million, primarily buoyed by increased enrollment which was however partly offset by lower revenue per student.
In 2016, revenues increased 2% to $441.1 million, below analysts’ expectation of $442.2 million.
Total enrollment at Strayer University for the winter term of 2017 increased 6.2% to 43,387 students compared with 40,872 students for the winter term of 2016. New student enrollments rose by 8% and continuing student enrollments increased by 6%.
Operating margin decreased 260 bps to 16.5%. Adjusted operating margin came in at 15.4%. Bad debt expenses, as a percentage of revenues, were 4.6% in the fourth quarter, reflecting a year-over-year increase of 130 bps.
Strayer Education ended the quarter with cash and cash equivalents of $129.2 million, as of Dec 31, 2016, compared with $106.9 million as of Dec 31, 2015.
The company generated $44.5 million in cash from operating activities in 2016 compared with $77.5 million a year ago. Capital expenditures totaled $13.2 million in 2016, compared with $12.7 million in 2015.
The company had a $70 million worth of share repurchase authorization as of Sep 30, 2016. Notably, no shares were repurchased in the fourth quarter of 2016.
The company expects to see 50–100 bps decline in revenue per student.
Tax rate is anticipated around 39.5% in the full year and slightly higher in first quarter of 2017 due to new accounting rules regarding the tax treatment of share-based compensation.
Capital Expenditure is expected to be 3–3.5% of revenues, slightly higher than in 2016.
The board of directors feels it’s appropriate to reinstate its annual common dividend at $1 per share in 2017 to be weighed quarterly starting Mar 20, 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two downward revisions for the current quarter. In the past month, the consensus estimate has shifted downward by 14.1 % due to these changes.
At this time, Strayer Education’s stock has a nice Growth score of ‘B’, though it is lagging a bit on the momentum front with a ‘C’. However, the stock was allocated a grade of ‘D’ on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of ‘C’. If you aren’t focused on one strategy, this score is the one you should be interested in.
Zacks’ style scores indicate that the stock is more suitable for growth investors than momentum investors.
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. It’s no surprise that the stock has a Zacks Rank # 5 (Strong Sell). We are looking for a below average return from the stock in the next few months.