Stride, Inc.

LRN Details

Stride, Inc. (NYSE: LRN) (formerly, K12 Inc.) is a technology-based education company, which offers educational products and services to assist individualized learning for students from kindergarten to adult learners. The company is engaged in two lines of business namely, 1) General Education, focused on students from kindergarten to grade 12 for core subjects including Math, English, Science and History, and 2) Career Learning, focused on developing skills for students, in middle school through high school and adult learners, to enter careers in high-growth, in-demand industries such as information technology, business, and health services. As of May 25, 2021, the company’s market capitalization stood at USD 1.15 billion.

Training Next-Gen of Online Educators: On May 18, 2021, the company announced a new partnership with Teach For America (TFA), under which it will host over 500 TFA teachers-in-training, who in turn will provide summer learning opportunities for students enrolled in LRN’s summer enrichment camp. This will help the teachers gain practical experience in working with students in a virtual setting and avail the opportunity to teach, observe, and receive coaching and feedback as part of their pre-service training.

Changing the Face of American Education: On April 21, 2021, the company announced a new partnership with the National Association of Black Male Educators (NABME) to provide professional development resources for black male educators in virtual and hybrid schools in the U.S. This partnership with NABME aims to expand the number of Black teachers employed by LRN and to facilitate online and traditional teaching setup for teachers by providing them with the right tools.

Q3FY21 Results: The company reported a sharp uptick of 52.49% in total revenue to USD 392.15 million in Q3FY21 (ending March 31, 2021) compared to USD 257.17 million in Q3FY20, primarily due to higher enrollments of 185.3 thousand students in Q3FY21 vs 122.1 thousand in Q3FY20. Net income for Q3FY21 was USD 23.79 million, 2.72x more than USD 8.75 million in Q3FY20.

Key Risks: The company earns the majority of its revenues from Managed Public School Programs (more than 88% in 2020). The government funding under these programs may be significantly reduced or altered due to economic or political compulsions, thus denting the company’s financials.

Outlook:

LRN Financial Outlook (Source: Investor Presentation, May 17, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LRN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LRN has declined by 37.87% in the past 9 months and is currently at the lower end of the 52-week range of USD 20.39 to USD 52.84. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 31.05. Considering the significant decline in the stock price in the past 9 months, demand for online education, strong financial performance, and positive outlook, we recommend a “Buy” rating on the stock at the closing price of USD 27.07, down by 2.06% as of May 25, 2021.

* The reference data on this report has been partly sourced from REFINITIV.