On Wednesday, Truist Securities revised its price target for Strategic Education (NASDAQ: NASDAQ:STRA), decreasing it to $120 from the previous $145, while maintaining a Buy rating on the stock. The adjustment comes after a noted decline in the stock's value, which saw a 7% drop compared to a 4% rise in the S&P 500 since the beginning of September.
The firm's analyst believes the recent downturn in Strategic Education's stock price is excessive and continues to support the company's future, particularly regarding the potential for margin improvements through operating leverage in the coming years. However, they also acknowledge new challenges ahead, specifically citing regulatory changes in Australia that could affect international student enrollment, a key factor for the company's growth.
These regulatory changes propose limits on the number of international students, which could pose a significant challenge to Strategic Education's enrollment numbers for the years 2025 and 2026. In response to these potential headwinds, the analyst has extended their financial model for the company to the year 2026.
The revision of the price target to $120 is attributed to lower valuation multiples for Education sector stocks. Despite the lowered target, the firm maintains a positive outlook on the company's ability to navigate through the regulatory changes and capitalize on its operational strategies to achieve margin gains.
In other recent news, Strategic Education has been making notable strides in its financial performance. The company's second-quarter results for 2024 surpassed expectations, primarily driven by robust enrollment growth in the US Higher Education (USHE) segment and accelerating numbers in Australia and New Zealand (ANZ). The Education Technology Services (ETS) division also reported strong results. Strategic Education's revenue saw a 9% surge, reaching $313 million, while its operating income increased over 60% to hit $44 million.
Despite these positive results, the company's management expressed a cautious stance regarding margin growth for 2024 due to planned investments in the ANZ and ETS segments. BMO Capital adjusted its outlook on Strategic Education, reducing the stock's price target from $130.00 to $125.00, while maintaining an Outperform rating. The revised price target reflects the potential impact of increased expenditure on profitability.
Strategic Education anticipates continued robust demand in the U.S. market and expects U.S. higher education growth rates to normalize between 5% to 10%.
InvestingPro Insights
Recent InvestingPro data provides additional context to Truist Securities' analysis of Strategic Education (NASDAQ: STRA). Despite the lowered price target, the company's financials show some positive indicators. Strategic Education's revenue growth of 10.56% over the last twelve months and an impressive EBITDA growth of 83.13% in the same period suggest the company has been expanding its operations effectively.
InvestingPro Tips highlight that Strategic Education holds more cash than debt on its balance sheet and has maintained dividend payments for 8 consecutive years, indicating financial stability. This could be particularly important as the company faces potential regulatory challenges in Australia. The current dividend yield stands at 2.7%, which may appeal to income-focused investors.
However, it's worth noting that the stock price has fallen significantly over the last three months, aligning with Truist's observation of the recent downturn. This decline has brought the stock to 71.79% of its 52-week high, potentially presenting a buying opportunity for those who share Truist's optimistic long-term view.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Strategic Education's financial health and market position.
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