Strayer Sees No Weakness in Demand; Shares Recoup Losses

Strayer Education Inc (STRA.O) shares recouped most of their initial losses Thursday after the for-profit education provider said on a conference call it sees no weakness in demand.

The company expects stable to slightly expanding operating margins for the full year, Chief Executive Robert Silberman said on the call.

Strayer shares fell 9 percent in early trade as it forecast first-quarter profit below market expectations, after posting estimate-beating quarterly results on higher enrollments and tuition.

The company — which offers programs in accounting, business administration, information technology and criminal justice to working adults — still expects full-year earnings of $9.30 to $9.50 a share, if its enrollment growth is 20 percent.

The company plans to open four new campuses for the 2010 spring term.

"The ‘disappointing’ guidance was attributed to higher-than-expected start-up losses owing to more front-end loaded campuses," Jeffrey Silber of BMO Capital Markets wrote in a note to clients.

The company sees first-quarter earnings of $2.56 to $2.58 a share. Analysts on average were expecting earnings of $2.62 a share, according to Thomson Reuters I/B/E/S.

"Margins are temporarily depressed in the first quarter due to acceleration of campus openings," analyst Robert Wetenhall of RBC Capital Markets said.

"We, however, expect Strayer will recover these expenditures during the remainder of the year and think the stock can easily earn more than $9.50 per share in 2010."

Most education companies benefited from the weak economy last year, as people returned to school in the hope that a better degree might improve their job prospects.

However, analysts said Strayer, being non-cyclical, will be insulated from the impact of the recovery.

"The people who go to school at Strayer are already working, whereas the people who attend more counter-cyclical schools are typically out of work and returning to school for vocational training," Wetenhall said.

For the fourth quarter, the company reported net income of $31.9 million, or $2.32 a share, compared with $24.2 million, or $1.71 a share, a year ago.

Revenue for the post-secondary education services company, which owns Strayer University, rose 29 percent to $147.2 million.

The rise in revenue was partly driven by a 5 percent tuition increase which commenced in January 2009.

Analysts on average were expecting earnings of $2.30 a share, on revenue of $146.7 million.
Total enrollment at Strayer University for the 2010 winter term rose 21 percent to 55,106 students, the company said.

New student enrollments increased 16 percent, while continuing student enrollments were up 22 percent.

"The enrollments for the winter term for new student starts was lower than expected," analyst Ariel Sokol of Wedbush Morgan Securities said .

Strayer shares, which earlier touched a low of $190.72, were down 2 percent at $206.79 Thursday afternoon on Nasdaq.


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