Strategic Education, Inc. (STRA – Free Report) has lost 15% in the past six months, underperforming the Zacks Schools industry, the Zacks Consumer Discretionary sector and the S&P 500 Index. The detailed price performance is shown in the chart below.
Image Source: Zacks Investment Research
This post-secondary education and other academic programs provider is likely to have been hurt by high costs and expenses due to increased marketing spending in Australia and accelerated investments to support the strong traction within the Education Technology Services segment. Seasonal enrollment trends and market competition are likely to have contributed to the headwinds.
However, the discussions surrounding the regulatory reforms to be undertaken under President Trump’s administration are expected to boost the business environment for education providers like Strategic Education moving into 2025. Furthermore, certain company-specific tailwinds like strong growth in employer-affiliated enrollments and onshore international enrollments, along with diversified program offerings, are fostering STRA’s prospects for the upcoming term.
STRA’s Estimate Trend Revision
The Zacks Consensus Estimate of the company’s 2025 earnings per share (EPS) has trended upward over the past 60 days. The estimated figure indicates 17.7% growth from the prior year’s reported level. This bullish trend justifies the stock’s addition to investors’ portfolios.
EPS Estimate Trend
Image Source: Zacks Investment Research
Furthermore, year-over-year growth of Strategic Education’s 2025 EPS estimate stands tall compared with a few of the other industry players including Grand Canyon Education, Inc. (LOPE – Free Report) , Nerdy, Inc. (NRDY – Free Report) and Adtalem Global Education Inc. (ATGE – Free Report) . The 2025 EPS estimates of LOPE, NRDY and ATGE indicate year-over-year growth of 9.7%, 3.1% and 17.6%, respectively.
Let us delve deeper into the factors that are fostering the company’s uptrend.
Factors Shaping STRA Stock’s Momentum
Diversified Program Offerings: Under Strategic Education’s U.S. Higher Education (USHE) segment, Capella University is continuously investing in introducing new programs and specializations to improve student outcomes. Continuous innovation and course update initiatives are adding to the expansion of its product portfolio, thus boosting enrollments and driving long-term growth. One such innovation is FlexPath, which is STRA’s fastest-growing program as it allows students to focus on leveraging their skills and knowledge gained during professional hours. FlexPath enrollments represented 24% of USHE enrollments in the third quarter of 2024, up from 22% reported in the prior-year period.
Another product offering is the Workforce Edge, under STRA’s Education Technology Services (ETS) segment. This platform serves as a low-cost source of new enrollments, offering a full-service education benefits administration solution for employers. In the third quarter of 2024, Workforce Edge signed four new partnerships, which resulted in the number of employees on the platform exceeding 3.7 million. As of Sept. 30, 2024, the platform had a total of 75 corporate agreements, with enrollments reaching about 1,600 students.
ANZ Segment’s Rebound: STRA’s Australia/New Zealand (ANZ) segment has made a comeback since the beginning of 2024 after witnessing a decline in student enrollments in quarters before the period. During the first nine months of 2024, revenues from this segment increased year over year to $190.5 million from $170.2 million on the back of increased enrollments and high revenue per student.
The overall uptrend witnessed by the segment was driven by strength in student enrollment continuation, a higher course load and a one-time benefit from non-refundable student deposits.
Employer-Affiliated Enrollment Growth: Strategic Education has been witnessing ongoing strength from its corporate partnerships, which is reflected in the increased employer-affiliated enrollment under the USHE segment. The increased demand for skill-based training to fit the employer’s job profile in the country is favoring STRA’s prospects. Notably, during the third quarter of 2024, employer-affiliated enrollment grew 13% year over year, with corporate partnerships contributing 30% (up 200 basis points year over year) to USHE’s total enrollment.
Total student enrollment within the USHE segment in the third quarter increased 4.8% to 86,533 from 82,548 reported a year ago. Strayer and Capella Universities reported strong new student enrollment. Given the ongoing strength in student enrollment, USHE is well-positioned to attain its expected growth rate in the upcoming quarters of 2025.
STRA Trading at a Discount
Strategic Education is currently trading at a discount compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. This indicates that compared with its peers, the company’s discounted valuation remains an attractive option for investors looking for a suitable entry point.
Image Source: Zacks Investment Research
Should STRA Stock be Added to Your Portfolio?
As discussed above, Strategic Education is notably benefiting from strength in enrollments and diversified product offerings, which are directly uplifting its top-line performance. Along with its benefits, the company is also expected to benefit from the regulatory reforms under Trump’s administration for the education industry as we enter into 2025.
It can be figured that although the price performance of STRA stock has declined in the past six months, its business metrics, along with positive earnings estimate revision trend, are strengthening its prospects for an outperformance in the upcoming period. Furthermore, its discounted valuation acts as a cherry on the cake for the investors figuring out the necessary action toward the stock.
Based on the aforementioned tailwinds and the direction of the technical indicators, investors can consider adding this Zacks Rank #2 (Buy) stock to their portfolio for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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