Stride, Inc.

LRN Details

Stride, Inc. (NYSE: LRN) (formerly, K12 Inc.) is a technology-based education company that provides educational products and services to help children from kindergarten to adult learners with personalized learning. It operates in two lines of business: 1) General Education, focused on fundamental courses such as Math, English, Science and History from kindergarten to grade 12, and 2) Career Learning, which prepares students in middle school through high school, as well as adults, for careers in high-growth, in-demand fields including information technology, business, and health care.

Promoting Racial and Socioeconomic Equity in Education: On July 29, 2021, the company announced 22 recipients of its first-ever "We Stand Together College" Scholarship, which will provide up to USD 250,000 (in total) to pay tuition and other fees at higher education institutions for the 2021-2022 academic year. The scholarship promotes educational equity based on race and socioeconomic status. Two of the total awardees will earn USD 25,000 apiece to attend Historically Black Colleges and Universities.

Guaranteed Graduation: On July 19, 2021, LRN created the Stride Graduation Guarantee, which guarantees high school graduation to qualified students participating in Stride K12-powered full-time public schools and programs. If a student ages out of a free public education option, LRN will cover tuition expenses at a Stride private school or provide additional remediation until they achieve their high school diploma.

Launching a Suite of Alumni Services: On July 12, 2021, LRN launched the Stride-Powered School Alumni Services, which will work with schools and universities to provide discounted tuition and scholarship options to over two million former students, allowing them to avoid crippling college debt. It will provide access to career exploration content and the ability to create a personal web presence via Tallo.

FY21 Results: The company reported a sharp uptick of 47.7% in revenues to USD 1.54 billion in FY21 (ended June 30, 2021) compared to USD 1.04 billion in FY20, primarily due to higher demand across LRN's all product lines. Net income for FY21 was USD 71.45 million, representing a 191.6% increase from USD 24.51 million in FY20. LRN exited the quarter with a cash balance of USD386.08 million and a total debt of USD 368.18 million.

Key Risks: LRN derives ~88% of its revenues from Managed Public-School Programs and depends on per-pupil funding amounts determined through a legislative process at all levels of government. If these budget appropriations are materially reduced due to economic conditions, political opposition, or new restrictions, its business could be adversely affected. Further, it is dependent on various information-technology systems to provide products and services to its customers. Through malicious activity or technological error, any failure in the IT system could harm its reputation and result in lower demand for its services.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 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's stock price increased 23.53% in the past three months and is currently at the mid-point of the 52-week range of USD 20.39 to USD 50.48. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 61.57. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 36.31. Considering the uptick in the stock price, demand for online education, solid financial performance, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 33.07, down 0.06% as of August 12, 2021, 2:19 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.