Google Finance
SEC Filing
Aug 16, 2013
2013 Q2 Data
Check list:
1.Major Business.
For profit education. Currently around 46,000 students. 100 campus in 24 states in US.
50% is for bachelor degree. 36% is for master degree. 13% is for associates degree.
Associate degree: 20 courses. average 2.5 years to complete. Currently $13,600/year.
Bachelor degree: 40 courses. However most students transferred 20 credits from community college. So the same as associate degree. Price the same as well.
Master degree: 12 courses. 1.5 years to complete. Currently $18,600/year.
2.Balance sheet.
Recent Price: $41.60, Tangible book value:$3.23, Share outstanding: 10.5m, Market Cap: $450m.
Current asset:$90m, Current liability: $43m, Debt: $123m, Cash: $68m.
3.Credit facility.
$125m Term loan: $123m outstanding, 3%, matures at Dec. 31, 2016.
$100m revolving: $0 outstanding.
4.Financial data by years.
| 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | 446 | 503 | 562 | 627 | 637 | 512 | 396 | 318 | 264 | 221 | 183 | 147 |
| OP Income | 81.7 | 32.7 | 114 | 179 | 216 | 172 | 127 | 97.5 | 79.5 | 75 | 65.5 | 53 |
| DA | 20.6 | 35.5 | 24 | 22 | 17 | 14 | 11 | 8.5 | 7.0 | 6.5 | 5.5 | 4.5 |
| EBITDA | 106 | 68.3 | 138 | 201 | 233 | 186 | 138 | 106 | 86.5 | 81.5 | 71 | 57.5 |
| CapX* | 6.9 | 8.7 | 16 | 19 | 19 | 12 | 10 | 8 | 6 | 8 | 7 | 3 |
| EBIT | 99.1 | 59.6 | 122 | 182 | 214 | 174 | 128 | 98 | 80.5 | 73.5 | 64 | 54.5 |
| EBIT% | 22% | 12% | 22% | 29% | 34% | 34% | 32% | 31% | 30% | 33% | 35% | 37% |
| Real Income** | 59.4 | 35.8 | 73 | 109 | 128 | 104.5 | 77 | 59 | 48 | 44 | 38.5 | 33 |
| Report Income | 46.4 | 16.4 | 66 | 106 | 131 | 105 | 81 | 65 | 52 | 48 | 41 | 34 |
| Cash | 162.2 | 94.8 | 48 | 57 | 76 | 171 | 130 | 120 | 123 | 108 | ||
| Debt | 119 | 122 | 122 | 90 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
** Real Income= EBIT*0.6 (using 40% as tax rate)
Real income previous to 2010 is less than reported income mainly because interest and other income. After 2010 real income is higher because for depreciation charge is bigger than maintenance capx and interest expense.
5.Insider holding, options, Insider trading info, share buy back.
Robert S. Silberman: (Chairman): 220k 2%, including 200k grants which will vest at 2019.
Karl McDonnell (CEO): 57km, including 46k grants which seems he returned to the company after vested at Feb. 2013. The reason might be it is impossible for him to meet the performance criteria.
6.Management compensation.
top five for 2010 to 2012: $5.6m, $2.7m, $9.6m.
7.Employee numbers. Revenue/Employee. Compensation/Employee.
around 2000 employees. 20 per campus.
8.Industry comparison.
Kaplan, (belongs to Washington Post Company)
DeVry Inc
Bridgepoint
University of Phoenix, (Apollo Group)
ITT Educational Services, Inc
Corinthian
Career Education Corp.
Education Management Corp
Capella Education Company
Investigation Report:
http://www.harkin.senate.gov/help/forprofitcolleges.cfm
9.Auditor
PricewaterhouseCoopers LLP
10.Major events.
(1) At 2009, it paid $40m(183k shares) worth of stock awards to CEO Robert. This was widely criticized. However, it is for a 10 year period and currently it is only worth $8m.
(2) Dec. 2011, Acquired a EMBA JackWelch Institute. Currently have around 500 students.
(3) May 2013, CEO Robert transfer his position to Karl. However, he is still actively evolved. Kind of like a co-CEO.
(4) May 2013, The company rolled out a Graduation Fund program which will give one free course at the last year for every 3 course completed in previous years. It is like a 25% deduction in tuition. Mainly to reduce the drop out rate.
(5) The company had been aggressively buying back shares in the past several years. Currently there is still $70m available for buy back this year. This could reduce more than $1m shares.
(1) In 15 of the public for profit education company. Strayer is in 10th place by students number. The whole industry is in trouble lately. Many of them are not doing business in a respectful way and need some major reform. However, in my opinion, Strayer is the best of them in quality wise. From many aspect, it is close to a not for profit. There are extensive writing and material that can be found about Strayer. Unless the whole sector will be wiped out, this company will likely survive .
(2) I can't agree more with the company leader's idea of running this business: Great university makes great company. Its focuses on academic success will eventually leads to its financial success. When a company put profit at second place, there will be rewards in the future. BTW, it is really enjoyable to read the annual letters written by Robert Silberman for past 12 years.
(3) Because the company is less focused on enrollment numbers, the revenue and enrollment numbers in kind of free fall in recently 2 years. And the Graduation Fund makes it even looks worse in the future. However, those are the right things to do in my opinion.
(4) The graduation fund will have a major affect both of its revenue and income starting Q3 2013. Given its graduates is less than 20% of total enrollment and only 2/3 of them are undergraduates. By maximum it would drag down revenue and profit by 20%*(2/3) = 13%. Given it also retires its $1000/term scholarship which will offset some the the decrease. I estimate that profit margin would decrease by 10% by maximum. If it indeed increase future enrollment, that is another story.
(5) Past financial data is not very useful for valuation in this case. We will end up with a high value if using it. I am pretty sure the profit margin no way will go back to previous level once the industry reformed.
(6) As mentioned in its report, a 2% drop in revenue would cause 1% drop in profit. This has been well observed in the past. I assume the revenue in 2014 will fall 10% from 2013 level, which would come close to $450m.
(a) If EBIT margin decline to 15%, then it would be $450*15%*60%=$40.5m in real income. Which will give a $60 in fair price.
(b) If EBIT margin decline to 10%, then it would be $27 in real income and a $40 in fair price. However, both revenue and margin would go even worse. Also since current depreciation will be $10m more than capx and another $5m in interest expense. Reported income might be $15*0.6=$9m less than real income.
(c) In a long run, if revenue restart to grow again and EBIT margin back to 20%, the upward will be big.
(7) It is hard to assign a quality score to it. The model I am using obviously has problems. Temporarily I just give a 8 for it.
Update: Oct. 30, 2014.
After one year the stock is back to $73. It seems not cheap anymore. Currently the company's annual EBIT% is still below 20% but is getting higher. Obviously the it is better than I estimated. Both 2014 and 2015 revenue would be around $450m. On 2016 it might return to $500m again.
If using 20% EBIT% and $500m as normal revenue, real earning would be just $60m/year. Which is support $84 fair value if using P/E of 15. However, that would be in 2016. So the current price over $70 might be good to exit.
Update: Feb. 06, 2015
After Q4 2014 release today, it price fell from $70 to $63 now.
In my view, the business is well in track. The price is quite good but not as attractive as before. $84 fair price is quite reasonable. Wish it could be lower than $60.
Sept. 14, 2020
Current Price $89, Shares 24m, Cap $2.2B.
It has been over 3 years since I last hold STRA. There are some updates.
1. The company was doing quite well in 2016 and 2017. Both its revenue and net income had recovered very well. Rev back to 450m and net income back to around 55m/year.
2. In 2018, it merged with Capella University, another for-profit that is a little smaller than Stayer with close to 40,000 students. STRA issued close to 10m shares which brought total shares to 22m.
3. In 2019, the integration of Capella went very well. Revenue grew to $1B including Capella. The real cash it generated is around $150m.
Since earlier this year, the stock has fallen from over $160 since earlier this year. There are some of the reasons:
1. The pandemic will decrease Strayer's enrollment significantly. As in Q2's conference, in Q3, Strayer's new enrollment will decrease by 27%, which will decrease revenue by 1%.
2. It will acquire Laureate’s Australia and New Zealand operation for $640m. Laureate(LAUR) is another high leveraged for-profit public company that is seeking to divest its holdings. The units STRA is acquiring generates around $190m in revenue. The price that STRA paid seems quite generous.
3. To fund the acquisition, STRA could use its $500m cash and with some debt. However, it went to offer 1.9m shares at $105/share. That increased the total shares to 24m.
Comments:
1. The overpay of the Laureate acquisition and the low price offering are more than offset by the falling of its share price. Overall, I believe the acquisition will be beneficial to the company.
2. The 27% decrease in the new enrollment of Strayer is indeed bad news. However, it only happens in Strayer which won't be that bad in Capella. Also, it is the new enrollment while not the overall enrollment. That is why it will only reduce the revenue by 1%. However, if the trend continues for 2 years, it could reduce overall revenue by 10% to 20%.
3. Currently, the stock is trading around 13 times its 2019 earnings. It is quite a cheap price. Currently, it is hard to estimate how long and how bad its new enrollment will be affected. I assume by 2022, it might go back to normal with $1.3B in combined revenue and $200 in net income. That should support a 4B market valuation.
Update: Mar. 22, 2022
Recent Price: $66. Shares 25m. Cap $1.64B
I was really wrong in the previous writing.
1. I have foreseen the possible outcoming of the reduction of Strayer's student enrollment but chose to ignore it. Revenue in 2021 was just $1.13B. Also, I failed to realize the operating leverage of the business which had reduced the net income to just $116m in 2021.
2. On the positive side, Strayer started to see the new student enrollment increase again. However, it will take another 18 months to 2 years for the total enrollment to increase again.
3. The chairman Mr. Silberman bought some shares at a price of around $60 lately.
4. Offset by the growth of other parts of the business, I estimate 2022 just a flat year vs 2021 while by end of 2023 it might go back to a $150 to $170m annual income level. Might support a $3B valuation by then.
