Strayer (NASDAQ:STRA) Showing Signs of Life After Blowout Quarter

Technology Stocks News 15

Fourth-quarter and anticipated future results for demand, retention, pricing, and expenses came in well above very low expectations for Strayer Eductation (NASDAQ:STRA), which should lead to significant upward moves in consensus forward earnings estimates. When combined with very weak sentiment following four years of virtually uninterrupted bad news and an associated 91% decline in peak-to-trough market capitalization, the stock reacted accordingly, finishing trading Friday up 38%.

Analysts are not surprised that the company’s aggressive and uniquely structured price cuts appear to have backstopped demand trends in light of significant evidence of price elasticity of demand in the sector, but the pace of cost-cutting on recent campus closures and the ability of the company to retain the affected students was much better than our expectations.

Management no longer offers a target business model, quarterly guidance, forward commentary, or really any level of transparency into the mechanics of the business and financial model at this point, so results (particularly new enrollment growth) will have to speak for themselves over the next few quarters and with key metrics heading in the right direction, a positive near-term bias is likely warranted. However, a stock price above $50 (greater than 20 times likely 2015 earnings consensus of around $2.50 and 6% higher than Friday’s $47.15 closing price) would seem to embed overly optimistic expectations.

 

 

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