STRA - Strayer Education

[yadayada]

It actually seems pretty fairly priced to me. If you look at their value proposition compared to the MOOCS, it looks really bad.

There is actually no issue here - Strayer has had online courses for around 15 years and you can complete a degree online only if you want to. If the model shifts to online, they are ready for it. It might even improve the economics slightly.

 

The issue with online only universities is not even the lack of proper accreditation in many instances or social stigma - these are temporary issues.

 

The big issue is that for online only students, the graduation rates are MUCH lower vs brick and mortar. This is the real problem. Students know that by going online only, they are substantially lowering their chances of getting a degree, which means they will be likely to pay significantly more to attend brick and mortar schools.

Yeah but you cannot make much money on the online courses. That will kill their business model. The MOOCS are non profit mostly.

 

Also the graduation rate with MOOCS is low, but not that much lower then with schools like Strayer. for MOOCS its like 8-9% (and rising) and for strayer it is like 15%. Given the costs of Strayer, they basicly need a large sales team, because its a pretty bad value proposition for the students. This wasnt a problem in 2005 when online education wasnt developed yet.

[Edward]

Yeah but you cannot make much money on the online courses. That will kill their business model. The MOOCS are non profit mostly.

I don't know about that, there are quite a few online only/mostly for profit schools which seem to do fine. Also Strayer has a pretty successful (and expensive) online MBA program.

 

Can anyone provide links to these "cheap" online Bachelor's degrees from regionally accredited online schools?

[PSDFinancier]

Edward, how do you think about enrollment growth for Strayer? Why has enrollment started to turn for ITT and Capella, but not for Strayer?

[one-foot-hurdles]

http://www.beyondproxy.com/updated-investment-thesis-strayer-education/

[ASTA]

I wonder how is left too actually liking this stock :D

The good thing about not shorting is my position gets smaller if it goes down.

Well maybe now everyone has thrown down their towels and it's going to ride up :D

Next time JEst is on the opposite of my trade I think I might listen a bit more:D

 

At least Robert L. Rodriguez likes his APOL so maybe a turn around for the industries is coming ::)

[ASTA]

http://www.mideasttime.com/strayer-education-stra-posts-quarterly-earnings-beats-expectations-by-0-34-eps/75044/

 

go go baby :D

[xtreeq]

Nice move, congrats to all the shareholders.

[klarmanite]

Looks like I may have bailed out of this one too soon...

[ASTA]

was anyone dumb enough like me to hold STRA before the jump and thinking whats going to happen next? Edward:D

[mevsemt]

I haven't sold any since I first bought back here: http://mevsemt.blogspot.com/2013/05/what-just-happened.html

[ASTA]

mevsemt

thanks for the response to bad you are not reporting you holdings anymore as you where part of my purchase decision ;D

[mevsemt]

Yeah... Sorry about not reporting holdings, but I think it's the right thing to do, and thanks for the kind words!

[ASTA]

Well without this stock my returns this year would be really bad so I sold my 11% position at 75.5. I hope other will see it go up more :D 

[zizou]

Strayer is getting interesting again.

Some areas they are getting into Strayer@Work and Nursing training..

Curious if buybacks resume?

 

anyone care to weigh in on whether risk/reward is appealing...

 

 

[60North Investments]

It seems to be taking wild moves based on the quarterly numbers that management sees fluctuating here and there. They didn't buyback any shares during the last Q, and sadly the track record, in hindsight, with their buybacks in the past wasn't all that great (2008-2011 they used $500m for 3.3m shares, so about $150/share).

 

The deal with Chrysler sounded interesting, though it remains to be seen within the next few years how much that could actually contribute. They said there's over 100k employees to whom it's available, and I think they anticipated something like a few thousand to participate.

 

Still, I like how management acts from a business perspective, even if they aren't the greatest capital allocators of all time. And the FCF rate they keep on getting in every quarter is very decent. Don't know if or when is the market going to appreciate that free cash flow more than it currently does. FWIW, been buying at these levels.

[Txvestor]

I think this is a villified industry. Much of it deserved, but not entirely. Strayer is a relatively upstanding player in it, and have a history going back 100+ years. Management is first rate and have demonstrated shareholder friendly actions in the past even if their timing on stock buybacks historically was not the best. They still have 70m in their buy back authorization and were buying heavily last year but basically stoped last Q, not sure if due to the stock being higher in the 60s/70s last Q or conserving cash, but they have an opportunity to do so now and suspect they are doing/will do.

Their bad debt rates were guided to be in the 4-5% range well below industry standards.

They continue to generate significant amounts of free cash flow, and since they suspended their $4 per year dividend last year, and much of their restructuring/downsizing is done now, it will be interesting to see what they do with that cash as debt levels are very manageable and arguably low considering the current interest rate environment. At current prices you are getting a near 15% FCF yield assuming no growth. The business revenues and enrollments are stabilizing at near current revenue levels(bouncing about at the bottom as the chairman put it) so I see the current FCF yield as sustainable as they have fixed their cost structure to suit already. Their growth initiatives such as the ones you mentioned and the Jack Welsch institute are actually adding enrollments but of course thats accounted for in the revenue stabilization. However they just announced an interesting arrangement with Chrysler automotive that offers tuition paid for by the company. They said the discounts they offered would be offset by reduced marketing costs, scale savings etc. implying that was a potential growth area(around 100k emplyees eligible) that would still preserve margins. They also said they will look at a similar arrangements with other employers though not in the automotive industry. Considering their student base currently of a little over 40k, I think thats a substantial pool of potential students and there's no incentive like 'free of cost to you'. I see Strayer as a leader of sorts in the structuring of educational offerings to meet employer needs. They have differentiated themselves somewhat in the past with their relationships with corporate clients and it seems to me they are moving further in that direction to build their business in this way in the currently competitive landscape. It also helps them to diversify away gradually from title iv funded students, which still makes up the bulk of their business and likely to be much more heavily regulated and scrutinized in the future.

From a step back and look at the big picture perspective, this company's 10yr finacials show a pattern of steady value creation with a dramatic turn in market sentiment towards this industry anhillating the stock price. I initiated a position in the mid 40s last year and rode it all the way up and down :(. I added in the low 60srecently and again yesterday. I see this as a likely double in 2-3 yrs once current initiatives gain traction and show up in revenue growth, and if that doesn't pan out a 15% FCF yield is not a bad thing to sit and wait on when you trust management. They have reduced share count from 15m to around 10.5m in the past few years. If they keep doing that with their FCF and the business stays where it is, thats not a bad outcome for shareholders either. I see downside as limited from these levels. To my mind a share price under $60 is very cheap in this market.

 

[farbelow]

I studied this as a long, because roic is indeed good and once they grow, value should come out. But after taking a careful look, I am staying away.

 

I find it difficult to tell if STRA has reached the bottom in enrollment. First of all, what makes it hard is that STRA gives little detail: f.e. they give year-over-year changes in new student quantity, but not how much this quantity of new students actually is. And, after three quarters of y/y increase in new students, their last quarter showed a y/y decrease of new students.

 

I have tried to find useful data on the IPEDS data center (http://nces.ed.gov/ipeds/datacenter/Default.aspx), but could not see the forest for the trees.

 

As far as management is concerned Mr. Silberman seems to take very good care of his personal capital allocation. He sold pretty much all of his stock in 2008, right near the top of the share price. And he subsequently decided right after, from 2009 onwards, that it was a good time for the company to repurchase stock.

 

To me it seems that STRA has lost their mojo. Originally, a major appeal of going to Strayer was that the student could keep his/her job and continue his/her education by attending a local campus. This moat is shrinking now that more and more students study online. Maybe this is a big reason why they are struggling to grow again.

The Chrysler deal is interesting, but again, it is unclear how many students this brings and if the deal is exclusive with Chrysler. And f.e. APEI has a comparable deal with Walmart.

 

Assuming no growth, the current share price seems about right. But they have been shrinking since 2010 year over year.

[prevalou]

two questions about "for profit education":

 

does online competition give graduation and what is its perceived value by employers ?

What the impact of gainful employment act on "for profit" strategies and enrollment ?

[farbelow]

1. Online vs on campus: I do not know how online is perceived by employers, but just studying online gives graduation. In case of STRA approx. 30% of their graduating student took 100% of their classes online. I realise that my comment about students studying online can be misread: STRA themselves give online courses (not just their competition) and during any semester approx. 65% of the students enrolled study solely online during that semester.

2. Gainful employment act and effect on for profit postsecondy education: this is beyond my circle of competence.

[zizou]

FROM THE ANNUAL REPORT:

 

In terms of the regulatory landscape, in 2014 the

U.S. Department of Education finally issued its

“gainful employment” regulation. While we remain

philosophically opposed to any regulation which

singles out investor-funded universities, and ignores

comparable non-profit institutions, we were pleased

that, by the Department’s own released data, Strayer

University’s programs all comfortably pass this new

regulation. Given our long history of focus on academic

quality and the achievement of learning outcomes, we

would have been surprised if it were otherwise. We

do think a better set of regulations would apply to

all post-secondary institutions (investor-funded and

non-profit), and would require institutions to have

“skin in the game,” i.e. to share with the U.S. taxpayer

any losses from students who default on government

issued loans which have been used to pay tuition to

those institutions. It seems particularly unfair that so

many non-profit institutions, which have both more

ambitious growth plans and less focus on academic

outcomes than Strayer University, are not covered by

this new regulation’s arbitrary debt to income ratios.

However, as President John F. Kennedy once famously

quipped, “Life is unfair.” We will make the best of it,

and Strayer University will undoubtedly be educating

students long after this regulation ceases to exist.

On the competitive front, in 2014 we continued to see

more non-profit universities adopting both aggressive

marketing techniques and online technologies to

expand their focus on working adult students. That

increase in competition has been offset in some respects

by a reduction in the number of investor-funded

institutions, some of whom have either succumbed

to shortages of capital, or a mismatch between their

academic models and the newly issued regulation.

Indeed, this shift of market share from investor-funded

institutions to taxpayer-subsidized ones may very

well have been the intent of many proponents of the

“gainful employment” regulation. It is the recognition

of that fact, plus the desire to avoid the oversight of

the regulation, which has led the managers of some

investor-funded institutions to explore shifting their

universities to a non-profit status. In such a structure

the same profits which owners had previously received

through dividends and capital gains, would instead

be transmitted to owners through some combination

of management contracts and financial instruments.

It remains to be seen whether regulators, educational

accreditors, and indeed the financial markets will

support such transformations. Suffice it to say, however,

that at Strayer University we remain quite comfortable

with our 125 year heritage of providing quality

education to our students, while at the same time

generating value for our shareholders.

To sum up the macro environment: we have a

stabilizing economy, finalized regulation, but increased

competition — all in, not so bad. Our University has

certainly seen worse, and as long as we remain focused

on the academic performance of our students, we

will prosper.

[ritrading]

Hey Zizou, as promised, I had a look at STRA.

 

-Enrollments still declining

-Revenue per student also declining, which results in a magnified hit to revenues.

-A change in control will result in losing eligibility for Title IV until recertification. Disruptive consequences, like an anti takeover measure.

-Cohort default rate was 15% in 2011, compared to National Average of 19%. (For completeness, it's 2011 because defaults don't happen until after graduation). 15% sounds better than 19%, but still pales in comparison to an 11% rate from private nonprofit schools shown here. http://ticas.org/sites/default/files/legacy/pub_files/CDR_2014_NR.pdf

-74% of revs come from Title IV, compared to other for profits which are closer to 90%

-Company is within fairly valued territory in terms of earnings and FCF. But going long at this "fair value" has an uncertain prediction that enrollments and revs stop going down.

 

STRA may be a better investment compared to other for-profits, but I think they are still higher risks than the average non-profit in terms of going concern. Perhaps you could go long on STRA and short a couple of the other underperforming for-profits? I don't know how much longer revenues and enrollments will decline. Personally, I'd want a larger margin of error for the unknowns.

[zizou]

Thanks for weighing in on STRA.

 

While enrollment is declining still, Mgmt has decided to lower tuition hoping to spur enrollment. I don't think the risks are that high related to Title IV funding

 

Operating leverage is huge with this business model, and as you pointed it works both ways...

 

However, I see the following as positive signs:

1. Mgmt has reduced campus footprint to lower fixed costs to ensure free cash generation. Management keeps a close eye on maintaining profitability.

2. Solid balance sheet; cash balance is substantial relative to operating needs.

3. Jack Welsh Inst is growing really well; the company continues to expand corporate side of business. Nursing education is a growth area that they have entered.

4  Owner-operators have demonstrated that they want to treat shareholders well. Share repurchases don't seem well-timed in rear view mirror, but I believe management will likely resume buybacks or issue dividends once enrollments resume growth.

5. As employment continues to improve, enrollment should naturally stabilize. Working adults are bread and butter client of Strayer, so gainful employment rules are not a concern.

5. Regulators have stated on record that Strayer stands out from the other players.

 

Let's keep a close eye on enrollments trend...

 

 

 

 

[Arden]

Strayer reports Q2 results.

http://www.strayereducation.com/releasedetail.cfm?ReleaseID=924374

 

topped estimates. on the one hand:

 

Revenues for the three months ended June 30, 2015 decreased 3% to $109.8 million compared to $112.7 million for the same period in 2014, principally due to lower enrollment and lower revenue per student.

 

 

on the other:

Total enrollments at Strayer University for the summer term 2015 increased 2% to 37,221 students compared to 36,403 students for the summer term 2014. New student enrollments increased by 4%, and continuing student enrollments increased by 2%.

 

Can anyone explain how enrollment can decrease at the same time it's increasing?

 

[Gamecock-YT]

Strayer reports Q2 results.

http://www.strayereducation.com/releasedetail.cfm?ReleaseID=924374

 

topped estimates. on the one hand:

 

Revenues for the three months ended June 30, 2015 decreased 3% to $109.8 million compared to $112.7 million for the same period in 2014, principally due to lower enrollment and lower revenue per student.

 

 

on the other:

Total enrollments at Strayer University for the summer term 2015 increased 2% to 37,221 students compared to 36,403 students for the summer term 2014. New student enrollments increased by 4%, and continuing student enrollments increased by 2%.

 

Can anyone explain how enrollment can decrease at the same time it's increasing?

 

http://www.strayer.edu/degrees/2015-academic-calendar

 

Q2 would be the spring term. Summer term starts in July.

 

 

[Arden]

Strayer reports Q2 results.

http://www.strayereducation.com/releasedetail.cfm?ReleaseID=924374

 

topped estimates. on the one hand:

 

Revenues for the three months ended June 30, 2015 decreased 3% to $109.8 million compared to $112.7 million for the same period in 2014, principally due to lower enrollment and lower revenue per student.

 

 

on the other:

Total enrollments at Strayer University for the summer term 2015 increased 2% to 37,221 students compared to 36,403 students for the summer term 2014. New student enrollments increased by 4%, and continuing student enrollments increased by 2%.

 

Can anyone explain how enrollment can decrease at the same time it's increasing?

 

http://www.strayer.edu/degrees/2015-academic-calendar

 

Q2 would be the spring term. Summer term starts in July.

 

Thanks, so this means enrollments have only very recently started to rise, and only Q3 will reflect it.