Strayer Sees Fall in Enrollments - Analyst Blog

The shares of Strayer Education, Inc. (STRA">STRA) continue to fall, dropping 22.6% or $34.64 to $118.60 on Monday, following a reported 20% fall in new student enrollment for the winter 2011 term late on Friday, compared to 16% growth experienced in the same period last year.

The educational institute, which offers degree programs in business administration, accounting, information technology, education and criminal justice, said that enrollment at Strayer University climbed 4% to approximately 57,300 students versus 55,106 students in the prior-year term.

Strayer Education notified continuing student enrollments jumped approximately 10%, across the Strayer University campus and online system.

Following a decline in new student enrollment for the winter 2011 term, Strayer Education informed that if annual enrollment drops 5%, its revenue may remain flat or fall 1% and earnings may lie between $7.50 and $7.70 per share. If enrollment rises 5%, Strayer Education 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 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 in the range of $11.30 to $11.50 per share, as projected earlier. The guidance includes  a 5% increase in tuition fees effective January 1, 2011, and the opening of eight new campuses in 2011.

The current potential risk looming over the education sector is the regulation proposed by the Department of Education. The Department of Education 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 company derives a major portion of its revenues from federal student financial aid programs, the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans. Consequently, for-profit education companies may witness declines in students' enrollments.

For-profit education institute Capella Education Company (CPLA">CPLA) now expects enrollment to rise in the range of 16% to 17% in fourth-quarter 2010, reflecting slower growth compared with the previous quarters.

The sector bellwether Apollo Group Inc. (APOL">APOL), which recently posted first-quarter 2011 results, said that total degreed enrollment dipped 3.8% compared with the year-ago quarter, as new degreed enrollment plunged 42.4%. However, the company's quarterly earnings of $1.63 per share outpaced the Zacks Consensus Estimate of $1.35, providing some cushion to the stock.

In a separate story, Strayer Education said that it has replaced its $15 million Revolving Credit Facility with a $100 million Revolving Credit Facility.

Currently, we have a Neutral rating on the stock. Moreover, Strayer Education holds a Zacks #3 Rank, which translates into a short-term ‘Hold' rating, and correlates with our long-term recommendation.

 
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