Yesterday, STRA reported 3Q09 EPS of $1.21, well above our estimate of $1.14 and company’s guidance due to strong marketing efficiencies. Strayer’s 2010 business model (which baselines $9.30-$9.50 EPS for 2010) is above our previous estimates and consensus, suggesting an upward bias for full-year 2010 EPS. Strayer’s 2010 southwestern expansion to four more states (AR, LA, MS, TX) is consistent with the company’s contiguous geographic expansion growth strategy and opens up new markets for the company’s schools.
Growth story continues. Fall enrollment grew 22% y/y (vs. our 21% y/y), while new enrollments (starts) grew 20% y/y (vs. a “tough” comp of 29% last year). Enrollment growth moderately decelerated y/y, but looked healthy sequentially. Interestingly, classroom enrollments grew faster than online enrollments (23% y/y vs. 21% y/y) because of increased campus-based offerings, specifically those designed for new students.
Consistency in execution brings comfort. We are encouraged by STRA’s execution strength, as the company is on track with the 2009 campuses openings (11 campuses) and enhanced its plans to open 13 new campuses in 2010. New Strayer campuses produce measurable ~70% internal rate of return.
Positives included better-than-expected revenue per student growth (5.7% y/y vs. our 5.1% y/y), ~250 bps y/y leverage in selling and promotional expenses (to 24.0% of revenues vs. our 25.7%), and a ~$5 mn share repurchase. 3Q09 Operating margin expanded ~290 bps y/y to 23.8% of revenues (vs. our 22.5%). Other positives included a new $100 mn share repurchase program and increased dividend (from $2.00 to $3.00 per share). Negatives included a three-day rise in DSOs (to 15 days), 80 bps y/y increase bad debt expense (to 4.5% of revenues, inline with our estimate), and 37% y/y decline in 3Q09 free cash flow.
With the sector out of favor, STRA trades toward the low end of its historical P/E range. We raise our 2009 EPS by $0.07 to $7.57 to account for 3Q09 outperformance. We also raise 2010 EPS by $0.15 to $9.45 and introduce 2011 EPS of $11.25. Shares of STRA trade at 21x our 2010 EPS estimate, vs. a group average of 14x. We are comfortable with STRA’s premium valuation, as it reflects superior focus on quality and consistency, lower risk profile, and better control over its prospective growth compared with that of its peers. We establish a y-e 2010 price target of $260 (29% upside), about 23x our new 2011 EPS estimate, approximately in line with the current forward multiple.
Friday, October 30, 2009
Strayer Education: Go Southwest, Young Man; 3Q09 Results/2010 Business Model Underline Consistency
Strayer Education: Go Southwest, Young Man; 3Q09 Results/2010 Business Model Underline Consistency Overweight
Yesterday, STRA reported 3Q09 EPS of $1.21, well above our estimate of $1.14 and company’s guidance due to strong marketing efficiencies. Strayer’s 2010 business model (which baselines $9.30-$9.50 EPS for 2010) is above our previous estimates and consensus, suggesting an upward bias for full-year 2010 EPS. Strayer’s 2010 southwestern expansion to four more states (AR, LA, MS, TX) is consistent with the company’s contiguous geographic expansion growth strategy and opens up new markets for the company’s schools.
Growth story continues. Fall enrollment grew 22% y/y (vs. our 21% y/y), while new enrollments (starts) grew 20% y/y (vs. a “tough” comp of 29% last year). Enrollment growth moderately decelerated y/y, but looked healthy sequentially. Interestingly, classroom enrollments grew faster than online enrollments (23% y/y vs. 21% y/y) because of increased campus-based offerings, specifically those designed for new students.
Consistency in execution brings comfort. We are encouraged by STRA’s execution strength, as the company is on track with the 2009 campuses openings (11 campuses) and enhanced its plans to open 13 new campuses in 2010. New Strayer campuses produce measurable ~70% internal rate of return.
Positives included better-than-expected revenue per student growth (5.7% y/y vs. our 5.1% y/y), ~250 bps y/y leverage in selling and promotional expenses (to 24.0% of revenues vs. our 25.7%), and a ~$5 mn share repurchase. 3Q09 Operating margin expanded ~290 bps y/y to 23.8% of revenues (vs. our 22.5%). Other positives included a new $100 mn share repurchase program and increased dividend (from $2.00 to $3.00 per share). Negatives included a three-day rise in DSOs (to 15 days), 80 bps y/y increase bad debt expense (to 4.5% of revenues, inline with our estimate), and 37% y/y decline in 3Q09 free cash flow.
With the sector out of favor, STRA trades toward the low end of its historical P/E range. We raise our 2009 EPS by $0.07 to $7.57 to account for 3Q09 outperformance. We also raise 2010 EPS by $0.15 to $9.45 and introduce 2011 EPS of $11.25. Shares of STRA trade at 21x our 2010 EPS estimate, vs. a group average of 14x. We are comfortable with STRA’s premium valuation, as it reflects superior focus on quality and consistency, lower risk profile, and better control over its prospective growth compared with that of its peers. We establish a y-e 2010 price target of $260 (29% upside), about 23x our new 2011 EPS estimate, approximately in line with the current forward multiple.
Yesterday, STRA reported 3Q09 EPS of $1.21, well above our estimate of $1.14 and company’s guidance due to strong marketing efficiencies. Strayer’s 2010 business model (which baselines $9.30-$9.50 EPS for 2010) is above our previous estimates and consensus, suggesting an upward bias for full-year 2010 EPS. Strayer’s 2010 southwestern expansion to four more states (AR, LA, MS, TX) is consistent with the company’s contiguous geographic expansion growth strategy and opens up new markets for the company’s schools.
Growth story continues. Fall enrollment grew 22% y/y (vs. our 21% y/y), while new enrollments (starts) grew 20% y/y (vs. a “tough” comp of 29% last year). Enrollment growth moderately decelerated y/y, but looked healthy sequentially. Interestingly, classroom enrollments grew faster than online enrollments (23% y/y vs. 21% y/y) because of increased campus-based offerings, specifically those designed for new students.
Consistency in execution brings comfort. We are encouraged by STRA’s execution strength, as the company is on track with the 2009 campuses openings (11 campuses) and enhanced its plans to open 13 new campuses in 2010. New Strayer campuses produce measurable ~70% internal rate of return.
Positives included better-than-expected revenue per student growth (5.7% y/y vs. our 5.1% y/y), ~250 bps y/y leverage in selling and promotional expenses (to 24.0% of revenues vs. our 25.7%), and a ~$5 mn share repurchase. 3Q09 Operating margin expanded ~290 bps y/y to 23.8% of revenues (vs. our 22.5%). Other positives included a new $100 mn share repurchase program and increased dividend (from $2.00 to $3.00 per share). Negatives included a three-day rise in DSOs (to 15 days), 80 bps y/y increase bad debt expense (to 4.5% of revenues, inline with our estimate), and 37% y/y decline in 3Q09 free cash flow.
With the sector out of favor, STRA trades toward the low end of its historical P/E range. We raise our 2009 EPS by $0.07 to $7.57 to account for 3Q09 outperformance. We also raise 2010 EPS by $0.15 to $9.45 and introduce 2011 EPS of $11.25. Shares of STRA trade at 21x our 2010 EPS estimate, vs. a group average of 14x. We are comfortable with STRA’s premium valuation, as it reflects superior focus on quality and consistency, lower risk profile, and better control over its prospective growth compared with that of its peers. We establish a y-e 2010 price target of $260 (29% upside), about 23x our new 2011 EPS estimate, approximately in line with the current forward multiple.
Thursday, October 29, 2009
Capella Education : Strong Enrollments and Operating Efficiencies in 3Q09 Enhance Outlook
North America Equity Research
Capella Education: Strong Enrollments and Operating Efficiencies in 3Q09 Enhance OutlookNeutral
This morning CPLA reported its 3Q09 EPS of $0.57, well above our estimate and consensus of $0.51, as a result of stronger-than-expected enrollment growth coupled with impressive efficiencies in instructional and marketing costs. We believe CPLA results underline the positive industry backdrop as student interest is abundant, government student loans have been accessible, and pricing increases are sticking.
Enrollments and operating leverage were impressive. Enrollments grew 28% y/y to 30,738, and revenues grew 28% y/y, both above company's guidance. Operating margin expanded ~524 bps y/y to 17.4%, also above our estimates and guidance, primarily due to efficiencies in instructional and marketing costs. Other positives included a $10 million share repurchase and continuing profitability improvements in the bachelor’s level, due to scale.
Higher 4Q09 guidance and reiterated long-term growth goals. Strong 3Q09 performance led to healthy (better-than-expected) 4Q09 guidance and 5-6% higher full-year 2009 EPS guidance. As a result, we expect 200 bps y/y margin expansion in 4Q09 (to 23.6%) and raised our 4Q09 EPS by $0.07 to $0.85.
3Q09 negatives included a continuing (mostly expected) drag in revenue per learner. While 3Q09 revenue per learner grew 0.3% due to favorable colloquia timing, we expect 4Q09 revenue per learner to decline over 2% y/y due to fewer colloquia, mix shift, and lighter course loads. Other modest negatives included 30 bps y/y increase in bad debt (to 2.5%), still one of the lowest in the sector.
Education sector is out of favor. We recognize that education stocks have been out of favor since February due to 1) regulatory/legislative uncertainty and 2) sector rotation away from defensive stocks. We continue to believe that education stocks provide a good balance of growth-defensiveness in a still uncertain economy and will show healthy (albeit much decelerated) growth during an economic expansion due to secular drivers.
We remain Neutral. We raise our 2009 EPS estimate by $0.13 to $2.47, raise our 2010 EPS estimate by $0.15 to $3.12, and introduce 2011 EPS of $3.74. Following a 50%+ rally since May, shares of CPLA trade at 23x our 2010 EPS (vs. 15x for the sector). CPLA’s premium valuation reflects consistent execution and high growth. Our new 2010 price target of $85 (18% upside) suggests 23x our 2011 EPS, approximately inline with the current NTM multiple. We prefer companies with an efficiency turnaround (APOL) or more open-ended growth (STRA).
Capella Education: Strong Enrollments and Operating Efficiencies in 3Q09 Enhance OutlookNeutral
This morning CPLA reported its 3Q09 EPS of $0.57, well above our estimate and consensus of $0.51, as a result of stronger-than-expected enrollment growth coupled with impressive efficiencies in instructional and marketing costs. We believe CPLA results underline the positive industry backdrop as student interest is abundant, government student loans have been accessible, and pricing increases are sticking.
Enrollments and operating leverage were impressive. Enrollments grew 28% y/y to 30,738, and revenues grew 28% y/y, both above company's guidance. Operating margin expanded ~524 bps y/y to 17.4%, also above our estimates and guidance, primarily due to efficiencies in instructional and marketing costs. Other positives included a $10 million share repurchase and continuing profitability improvements in the bachelor’s level, due to scale.
Higher 4Q09 guidance and reiterated long-term growth goals. Strong 3Q09 performance led to healthy (better-than-expected) 4Q09 guidance and 5-6% higher full-year 2009 EPS guidance. As a result, we expect 200 bps y/y margin expansion in 4Q09 (to 23.6%) and raised our 4Q09 EPS by $0.07 to $0.85.
3Q09 negatives included a continuing (mostly expected) drag in revenue per learner. While 3Q09 revenue per learner grew 0.3% due to favorable colloquia timing, we expect 4Q09 revenue per learner to decline over 2% y/y due to fewer colloquia, mix shift, and lighter course loads. Other modest negatives included 30 bps y/y increase in bad debt (to 2.5%), still one of the lowest in the sector.
Education sector is out of favor. We recognize that education stocks have been out of favor since February due to 1) regulatory/legislative uncertainty and 2) sector rotation away from defensive stocks. We continue to believe that education stocks provide a good balance of growth-defensiveness in a still uncertain economy and will show healthy (albeit much decelerated) growth during an economic expansion due to secular drivers.
We remain Neutral. We raise our 2009 EPS estimate by $0.13 to $2.47, raise our 2010 EPS estimate by $0.15 to $3.12, and introduce 2011 EPS of $3.74. Following a 50%+ rally since May, shares of CPLA trade at 23x our 2010 EPS (vs. 15x for the sector). CPLA’s premium valuation reflects consistent execution and high growth. Our new 2010 price target of $85 (18% upside) suggests 23x our 2011 EPS, approximately inline with the current NTM multiple. We prefer companies with an efficiency turnaround (APOL) or more open-ended growth (STRA).
DeVry : Solid 1QF10 Shows Continued Healthy Balance of Growth and Margin Expansion
North America Equity Research
DeVry: Solid 1QF10 Shows Continued Healthy Balance of Growth and Margin ExpansionNeutral
Yesterday, DeVry reported its 1QF10 (Sept) EPS of $0.76, well above our estimate of $0.64 and consensus of $0.66, as a result of the robust revenue growth and efficiencies in student services and administrative spending.
Positives included strong total enrollment growth momentum across most businesses, favorable student persistence, and strong cash flow, and continued impressive margin efficiencies within the Business, Technology and Management (formerly DVU) segment. Negatives included continued cyclical drag from the Professional & Training segment and a negative margin mix due to the USEC acquisition. In addition, management stated that future growth rates are against tougher y/y “comparisons.”
Education sector is out of favor, but strong fundamentals are hard to ignore. We recognize that education stocks have been vulnerable in the last few months due to 1) regulatory/legislative uncertainty and 2) sector rotation away from defensive stocks. We continue to believe that education stocks provide a good balance of growth-defensiveness in a still uncertain economy and will show healthy (albeit much decelerated) growth during an economic expansion due to secular drivers.
Efficiencies are encouraging, but intermediate term margin upside may be limited in our view. We acknowledge that DeVry’s investments will likely decelerate in the next several quarters resulting in a modest margin expansion. We expect ~130 bps y/y margin expansion (to 18.0%) in FY2010, above DV’s historical peak operating margin (of 17%). We appreciate DV’s approach of balancing growth and margin expansion and believe that company's investments should propel solid growth regardless of the economic cycle.
We maintain Neutral rating. We raise our FY10 and FY11 EPS estimates by $0.18 and $0.20 to $3.14 and $3.63, respectively, to account for the healthy enrollment momentum and efficiencies. Following a 40%+ rally since May, shares of DV trade at 17x our CY10 estimate of $3.38, above the group average multiple of 14x. We believe DV’s premium reflects its diversified nature and growth/margin balance. Our new December 2010 PT of $60 implies 17x our FY2011 EPS estimate, approximately inline with the current forward multiple.
DeVry: Solid 1QF10 Shows Continued Healthy Balance of Growth and Margin ExpansionNeutral
Yesterday, DeVry reported its 1QF10 (Sept) EPS of $0.76, well above our estimate of $0.64 and consensus of $0.66, as a result of the robust revenue growth and efficiencies in student services and administrative spending.
Positives included strong total enrollment growth momentum across most businesses, favorable student persistence, and strong cash flow, and continued impressive margin efficiencies within the Business, Technology and Management (formerly DVU) segment. Negatives included continued cyclical drag from the Professional & Training segment and a negative margin mix due to the USEC acquisition. In addition, management stated that future growth rates are against tougher y/y “comparisons.”
Education sector is out of favor, but strong fundamentals are hard to ignore. We recognize that education stocks have been vulnerable in the last few months due to 1) regulatory/legislative uncertainty and 2) sector rotation away from defensive stocks. We continue to believe that education stocks provide a good balance of growth-defensiveness in a still uncertain economy and will show healthy (albeit much decelerated) growth during an economic expansion due to secular drivers.
Efficiencies are encouraging, but intermediate term margin upside may be limited in our view. We acknowledge that DeVry’s investments will likely decelerate in the next several quarters resulting in a modest margin expansion. We expect ~130 bps y/y margin expansion (to 18.0%) in FY2010, above DV’s historical peak operating margin (of 17%). We appreciate DV’s approach of balancing growth and margin expansion and believe that company's investments should propel solid growth regardless of the economic cycle.
We maintain Neutral rating. We raise our FY10 and FY11 EPS estimates by $0.18 and $0.20 to $3.14 and $3.63, respectively, to account for the healthy enrollment momentum and efficiencies. Following a 40%+ rally since May, shares of DV trade at 17x our CY10 estimate of $3.38, above the group average multiple of 14x. We believe DV’s premium reflects its diversified nature and growth/margin balance. Our new December 2010 PT of $60 implies 17x our FY2011 EPS estimate, approximately inline with the current forward multiple.
Friday, October 2, 2009
Gandhi's Birthday Today
Gandhi’s birthday, or Gandhi Jayanti, is celebrated every year as the International Day of Non-Violence. The Mahatma, who was born on 2 October 1869, would have turned 140 this year. Happy Birthday...
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