- The Washington Times - Monday, February 20, 2006

Strayer University, whose burgeoning enrollment of working adults has brought fresh financial gains, is counting on the baby boomers’ continuing efforts at self-improvement to keep the profits coming.

Arlington-based Strayer Education Inc. saw a $9 rise in stock price last week after reporting positive fourth-quarter and year-end results Thursday.

After closing at $90.78 Wednesday, shares of the company, which owns Strayer University, surged to $99.89 Friday.

The company last week reported a 13-percent climb in fourth-quarter net income to $15 million, or $1.03 per share, from $13.3 million, 89 cents per share, in the earlier period. In 2005, net income grew 17 percent to $48.1 million, or $3.26 per share, from $41.2 million, $2.74, in 2004.

“We are pleased with Strayer’s financial performance for the fourth quarter and year-end, as well as our enrollment for the winter term,” company Chairman and Chief Executive Officer Robert Silberman said.

He credited the results to five new campuses, including three new markets, and the growth of Strayer University Online.

Strayer University, which operates 39 campuses in nine states and the District, offers degree programs largely to working adults whose average age is 34.

Analysts said the company’s rise in enrollment — total enrollment for the 2006 winter term increased 16 percent to 27,621 students compared with 23,815 in winter 2005 — was on par with predicted growth levels. In 2006, the company plans to open eight new campuses.

“Enrollment met our expectations and we would suspect may have exceeded others given some of the issues facing the post-secondary industry,” such as greater competition and an improving job market, said a research report by Jerry Herman, an analyst with Baltimore-based Stifel Nicolaus & Company Inc., which has an investment banking relationship with Strayer.

Greg Capelli, an analyst with Credit Suisse in Chicago, which has an investment banking relationship with the company, said the stock is undervalued.

“I think Strayer is one of the best-positioned companies within the for-profit higher education space,” Mr. Capelli said, noting that the company is adding about 15 percent more in square footage capacity each year. While Strayer is netting 5 percent in revenue growth each year from its mature campuses, revenue growth from new campuses is expected to be between 10 percent and 15 percent, Mr. Capelli said.

“What that’s doing is temporarily weighing down in the margins because there’s the cost of opening those schools and you lose money initially,” he said. “You’re hurting short-term results, which short-term investors don’t like to see,” but “it’s very well worth doing the project.”

Mr. Capelli cited increased competition as the company’s biggest risk. “Is there enough room for all the competition to go after the same base of students?” he said.

Strayer’s largest competitor, the Apollo Group Inc.’s University of Phoenix, is changing its business model to target the next generation of professionals now that the youngest baby boomers are 42 years old, Mr. Capelli said.

“I think there’s enough there for [Strayer] to continue to grow at the rate they want to grow but the risk is that they’re not going downstream to a younger student where there’s more of them demographically,” he said.

For the first quarter of 2006, the company anticipates diluted earnings per share to fall in the range of $1.10 to $1.12 before the impact of an 8-cents-per-share stock-based compensation expense.


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