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STRA – Didn’t Pass the Test

Stock (Symbol) Stock Price

Strayer Education (STRA)

$151

Data is as of Expected to Report Sector

September 10, 2010

Oct 25

Education

Company Description
Strayer Education, Inc. is a post-secondary education services corporation. The Company offers a range of academic programs through its wholly owned subsidiary Strayer University, Inc. (the University), both in classroom courses and online via the Internet. Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health care, public administration and criminal justice at 78 physical campuses in Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Washington, D.C. As of December 31, 2009, the Company had more than 54,000 students enrolled in its programs. The Company has also developed a robust online education program.
Sharek’s Take
David SharekStrayer got slammed last month as results from the Department of Education show STRA could lose eligibility for federal student aid. To keep eligibility, schools have to have 45 percent of ex-students paying down debt. If that rate falls below 35 percent, schools lose that loan eligibility. Strayer clocked in at 25 percent — although the company said the rate was 55 percent. The catch here is students have to pay down loan balances — not just interest — so “minimum payments” don’t cut it.When the news first broke, I sided with Strayer because the school has been around one hundred years and specializes in continuing education for people who already have jobs (thus a way to pay). Now I’m afraid. Short sellers are zooming in on STRA and pushing the stock down hard. I own two education stocks in the Growth Portfolio — STRA and Bridgepoint Education (BPI) — and it’s not my thing to be a contrarian (fight the the tide).So now I’m on the fence. I’d love to stock with this stock and ride out the storm, but on the other hand the market is in a rally which is benefiting most of the other growth stocks out there. I feel like I’m stuck with this stock and maybe I should lighten up on the sector. BPI has a better repayment rate (45% — so it keeps eligibility) and a P/E of only 7 compared to STRA’s 15.
One-Year Chart
You can see the clean break from the bad news at the right. I’m disappointed the stock continued to fall in the weeks following — that’s a bad sign.Profits look great but I’m sure investors are wondering what profits will be two years from now is STRA losses ability to provide federal aid. The P/E of 15 is around half the 30 times earnings the stock normally sells for. This whole chart is green — but its scary. STRA one-year chart
Profit Growth Earnings Table
Profits jumped 30% last quarter on a 26% rise in revenues. Honestly, all this current financial news isn’t relevant with the uncertainty surrounding the future. Earnings Table
Beat the Street
SRTA has beat the street in each of the last four quarters. This company puts out solid figures quarter-after-quarter, year-after-year.
Annual Profit Estimates
Strayer’s sparkling results last quarter pushed up 2010 and 2011 estimates. 2012 is when we start to see estimates declining.

These annual estimates are so uncertain now.

Future Quarters
Estimates jumped for next quarter and profit growth looks to be 22% or more in each of the next four quarters — outstanding.
Fair Value
STRA isn’t going to get a solid P/E ratio now — I don’t even know if that’s relevant. If we guess the P/E goes up slightly and 2011 profits don’t fall, upside is 36% in a year.  

 Year  Profits  x  P/E  =  Price  Upside/Downside
 Today  9.93  x  15  =  151  
 2010 Fair Value  9.93  x  17  =  169  12%
 2011 Fair Value  12.09  x  17  =  206  36%
Ten-Year Chart
This is what attracts me to STRA. This ten-year chart is one of the most beautiful in the stock market — even after the fall. Profits have compounded at 22% and the stock’s grown at 22% for a decade. Profits have grown every year — such a solid company if it weren’t for the loan problems. STRA ten-year chart
Power Ranking Bottom Line
Growth Portfolio

17 of 17

I’d like to give Strayer a little more time to work through this problem. There’s little inside data to make a clear buy/sell decision on. Looking at the ten-year chart STRA is hitting support around $150 and often stocks retrace 50% of a given move. The last move was $250 to $150 so a bounce to $200 could occur.Strayer is ranked 17 of the 17 stocks in the Growth Portfolio.
Aggressive Growth Portfolio

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