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Strategic Education Inc Valuation – August 2018 $STRA

Company Profile (excerpt from Reuters): Strategic Education, Inc., formerly Strayer Education, Inc., incorporated on May 10, 1996, is an education services holding company. The Company provides post-secondary education and other academic programs, through its subsidiaries, Strayer University (the University), New York Code and Design Academy (NYCDA) and Capella Education Company (Capella). As of December 31, 2016, the University offered undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, nursing, public administration and criminal justice at 74 physical campuses located in the Mid-Atlantic and Southern regions of the United States, and online. The University also offers an executive Master of Business Administration (MBA) online through its Jack Welch Management Institute. Its subsidiary, NYCDA, provides non-degree courses in Web and application software development, primarily at its campus in New York City.

Downloadable PDF version of this valuation:

ModernGraham Valuation of STRA – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,564,597,123 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.09 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -68.41% Fail
6. Moderate PEmg Ratio PEmg < 20 46.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.04 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.09 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.99
MG Growth Estimate -4.25%
MG Value $8.90
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $43.40
MG Value based on 0% Growth $25.44
Market Implied Growth Rate 18.86%
Current Price $138.38
% of Intrinsic Value 1555.37%

Strategic Education Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.85 in 2014 to an estimated $2.99 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Strategic Education Inc revealed the company was trading above its Graham Number of $36.84. The company pays a dividend of $1 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 46.23, which was above the industry average of 33.97. Finally, the company was trading above its Net Current Asset Value (NCAV) of $8.9.

Strategic Education Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $8.90
Graham Number $36.84
PEmg 46.23
Current Ratio 3.09
PB Ratio 7.04
Current Dividend $1.00
Dividend Yield 0.72%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $214,172,000
Total Current Liabilities $69,204,000
Long-Term Debt $0
Total Assets $336,765,000
Intangible Assets $17,919,000
Total Liabilities $112,925,000
Shares Outstanding (Diluted Average) 11,380,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.22
Dec2017 $1.84
Dec2016 $3.21
Dec2015 $3.73
Dec2014 $4.35
Dec2013 $1.55
Dec2012 $5.76
Dec2011 $8.88
Dec2010 $9.70
Dec2009 $7.60
Dec2008 $5.67
Dec2007 $4.47
Dec2006 $3.61
Dec2005 $3.26
Dec2004 $2.74
Dec2003 $2.27
Dec2002 $1.78
Dec2001 $1.55
Dec2000 $1.41
Dec1999 $1.23
Dec1998 $1.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.99
Dec2017 $2.90
Dec2016 $3.53
Dec2015 $4.07
Dec2014 $4.85
Dec2013 $5.63
Dec2012 $7.62
Dec2011 $8.12
Dec2010 $7.23
Dec2009 $5.64
Dec2008 $4.42
Dec2007 $3.62
Dec2006 $3.04
Dec2005 $2.61
Dec2004 $2.18
Dec2003 $1.81
Dec2002 $1.53

Recommended Reading:

Other ModernGraham posts about the company

Strayer Education Inc Valuation – Initial Coverage $STRA

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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