Strayer Education (STRA) Street Consensus Views

A week ago, Strayer (STRA) reported guidance that came in below analyst estimates, but the Street continues to remain optimistic. I personally remain cautious based on what I view as overly optimistic expectations and premium multiples that are being placed on stocks in this group during this economic environment. I believe it may be prudent to follow CEO Silberman’s lead and sell with the insiders. Some clues that things aren’t as rosy as management portray show up in an analysis of receivables growth relative to revenue growth. Here are some comments from recent analyst reports:

William Blair analyst Andrew Dobell writes, “as we saw with DeVry (DV $55.69) a few weeks ago, an in-line quarter was not enough in the face of very high expectations for sequential enrollment growth acceleration”. However, he says he still likes the stocks fundamentals and has an outperform rating on the shares.
Barrington analyst Alexander Paris believes that at 27.9x his 2009 EPS estimates of $.690, shares trade in line with the peer group and believes that “the majority of the damage has been done, with the stock’s valuation premium all but erased” from the recent 18% price drop after earnings were announced. Paris has a market perform rating on STRA.
JP Morgan analyst Andrew Steinerman says that key takeaways from the recent call include (1) timing of investments was front end loaded (Note: this is referring to investment on the new online center); (2) Corporate reimbursement trends seem to be intact[emphasis added by me]; (3) Strayer management sees programs as non-cyclical. Steinerman has an overweight rating on the shares.
Credit Suisse analyst Kelly Flynn rates STRA shares neutral, but expects shares to bounce back 10%-15% as “the STRA story has not changed”.

Receivables and Revenue Growth Q107-Q408

Commentary
Notice Q3 and Q4 YOY tuition receivables growth was greater than revenue growth. Although receivables growth didn’t exceed revenue growth by an enormous margin, this relationship will be worth monitoring in coming quarters and could be a sign of aggressive booking of revenues by management. At the very least, this sort of question should have been asked of management on the earnings call instead of softball questions about the tax rate. Further investigation in this area as to why receivables growth outpaced revenue growth is warranted.