Strategic Education, Inc.

STRA Details

Strategic Education, Inc. (NASDAQ: STRA) operates as an education service holding company that offers post-secondary education and other academic programs via campus and online-based offerings to support individualized learning for students. STRA operates through 1) US Higher Education (USHE), providing certificate and degree programs to working adults through Strayer University and Capella University, 2) Australia/New Zealand, offering certificates and degree programs through Torrens University in Australia and Media Design School in New Zealand, and 3) Alternative Learning, focusing on creating and sustaining connections with large organizations to develop programs that give employees access to skill-based training, certificates, and degrees. As of November 02, 2021, the company's market capitalization stood at USD 1.66 billion.

Latest News:

• Partnership to Upskill Designer Brands' Employees: On September 15, 2021, Workforce Edge, a subsidiary of STRA, collaborated with Designer Brands, Inc., a footwear and accessory designer and retailer in North America, to provide the latter's full-time associates with higher education options through Strayer and Capella Universities, including degrees with tuition sponsored by Designer Brands, plus online undergraduate and graduate programs at a network of public and private universities.

Q2FY21 Results:

• Growth in Topline: The company reported a YoY increase of 16.94% in operating revenue to USD 299.17 million in Q2FY21 (ended June 30, 2021) compared to USD 255.83 million in Q2FY20, primarily due to the acquisition of Australia/New Zealand operations from Laureate Education, Inc. in November 2020.
• Decline in Profitability: Net income for Q2FY21 reduced 41.51% and stood at USD 19.98 million from USD 34.15 million in Q2FY20.
• Cash and Debt Position: As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 265.63 million and total debt of USD 141.75 billion.

Key Risks:

• Dependence on Title IV programs: In Q2FY21, Strayer University and Capella University derived 82.95% and 71.98% of their revenues, respectively, from Title IV programs. STRA is mandated to comply with the comprehensive Title IV program regulatory requirements set by the Department of Education (DOE), which prohibits proprietary institutions that derive more than 90% of their total revenue from Title IV Programs for two consecutive fiscal years from participating in Title IV programs for the next two years. This can lead to loss of program funding and could adversely impact the company's financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

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

STRA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

STRA's stock price has declined 26.44% in the past nine months and has breached its previous 52-week range of USD 67.52 to USD 101.29. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 40.23. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 81.74.

Considering the significant correction in the stock price in the past nine months, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 67.45, down 5.64%, as of November 02, 2021.

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

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

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.