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Strategic Education’s (STRA) Shares Jump on Q3 Earnings Beat


Strategic Education, Inc. STRA, or SEI reported mixed third-quarter 2018 results, wherein earnings beat the Zacks Consensus Estimate while revenues missed the same. Nonetheless, both the top and bottom lines increased significantly on a year-over-year basis. Consequently, shares of the company rallied about 12% during yesterday’s trading session.

Adjusted earnings of 92 cents per share surpassed the consensus mark of 71 cents by 29.6%. Also, the reported figure increased significantly from 32 cents per share on a year-over-year basis.

Revenues of $160.9 million missed the consensus estimate of $185 million by 13%. Nevertheless, the reported figure improved 48.3% from the prior-year level. Meanwhile, adjusted revenues (revenues excluding deferred revenue adjustment) increased 72.5% to $187.2 million from the prior-year quarter.

Strategic Education Inc. Price, Consensus and EPS Surprise

Strategic Education Inc. Price, Consensus and EPS Surprise | Strategic Education Inc. Quote

Strayer Education Q3 Highlights

Strayer Education’s revenues increased 6.7% to $114.5 million year over year. Total enrollment grew 9% to 45,431 students. New student enrollments rose 11.9% and continuing student enrollments increased 8.3% from a year ago. The positive results were driven by a rise in summer term enrollment, partially offset by lower revenue-per-student.

Additionally, its operating margin increased 290 basis points (bps) during the reported quarter.

Notably, on Sep 25, Strayer University opened a new campus in Montgomery, AL and is on track to open two additional campuses by the end of 2018.

Capella Education Q3 Highlights (From Aug 1, 2018 Through Sep 30, 2018)

Its revenues came in at $43.8 million, accounting for higher student enrollments and a rise in revenue-per-learner. Meanwhile, the reported figure includes a purchase accounting adjustment of $26.2 million as deferred revenues at fair value, as part of the merger. Revenues excluding purchase accounting adjustment came in at $70.0 million.

During the quarter, total enrollment at Capella University increased 1.6% to 37,822 students. Also, it reported a 13.2% year-over-year increase in new student enrollment. However, continuing student enrollment decreased 0.8% from the prior-year period.

FlexPath has been performing significantly well and now comprises 26% of Capella Education's Bachelor and Master's degrees enrollment. Its adjusted operating margin was 17% in the reported quarter.

Non-Degree Programs Q3 Highlights

During the third quarter, revenues in the segment doubled to $2.7 million from the third quarter of 2017, backed by higher revenues from DevMountain, Hackbright Academy and Sophia.

Operating Highlights

In the third quarter of 2018, adjusted operating margin came in at 11.8%, up 620 bps from the year-ago quarter. Adjusted EBITDA grew more than double from the prior-year figure of $14.2 million to $34.0 million.

Financial Details

As of Sep 30, 2018, it recorded cash and cash equivalents of $276.4 million compared with $155.9 million at 2017-end.

In the first nine months of 2018, the company used $14.6 million cash from operating activities versus $24.5 million cash provided by operations in the year-ago period. The decline was mainly due to merger-related cash payments. Capital expenditures totaled $16 million compared with $14.6 million in the prior-year period.

The company had $70 million worth of share repurchase authorization as of Sep 30, 2018. Notably, no shares were repurchased in the third quarter.

Zacks Rank & Key Picks

Currently, Strategic Education carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the Zacks Schools industry are K12 Inc. LRN, RYB Education, Inc. RYB and Adtalem Global Education Inc. ATGE. While K12 and RYB Education sport a Zacks Rank #1 (Strong Buy), Adtalem carries a Zacks Rank #2 (Buy). You can the complete list of today’s Zacks #1 Rank stocks here.

K12’s earnings per share are expected to increase 11.8% in 2018.

RYB Education is expected to record an EPS growth rate of 195.5% next year.

Adtalem has an expected earnings growth rate of 1.8% for the current year.

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