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On Thursday, Truist Securities expressed continued confidence in Strategic Education (NASDAQ:STRA), maintaining a Buy rating with a steadfast $120.00 price target. According to InvestingPro data, the stock is currently trading near its 52-week low of $74.28, while analysts’ targets range from $97 to $120, suggesting significant upside potential. The company’s strong financial health is reflected in its "Good" overall health score. The firm’s analyst highlighted the potential growth catalyst from a new partnership with Walmart (NYSE:WMT) in the Education Technology Services (ETS) segment, which might significantly contribute to revenue growth in 2025.
The analyst anticipates that this collaboration could lead to an over 30% increase in ETS revenue for Strategic Education in 2025, outpacing the consensus estimate of a 22% year-over-year increase. According to Truist Securities, the ETS segment not only boasts the highest margins at STRA but could also singularly propel 5-7 percentage points of year-over-year earnings per share (EPS) growth for the company in 2025, compared to the consensus EPS growth forecast of 12%. The company’s current P/E ratio of 16.54x appears attractive relative to its growth prospects, with InvestingPro analysis revealing multiple positive indicators, including strong cash flows and consistent dividend payments for 9 consecutive years.
The optimism surrounding the potential partnership is grounded in the belief that the deal with Walmart could be a significant yet undervalued factor in driving STRA’s revenue growth. The ETS segment’s robust performance is expected to underlie the firm’s confidence in their 2025 financial estimates for Strategic Education.
However, Truist Securities also noted risks that could impact the company’s performance, including a potential slowdown in enrollment for the United States Higher Education (USHE) and changes in immigration policy in Australia. These factors could pose challenges to the company’s growth trajectory.
In summary, Truist Securities reaffirmed its positive outlook on Strategic Education, underpinned by the company’s high-margin ETS segment and the prospective benefits from a large-scale business-to-business (B2B) partnership with Walmart. The maintained Buy rating and $120 price target reflect the firm’s expectation of significant revenue and EPS growth for STRA in the coming years. With a healthy 7.68% revenue growth in the last twelve months and minimal debt on its balance sheet, InvestingPro analysis suggests the stock is currently undervalued, offering an attractive entry point for investors seeking growth potential.
In other recent news, Strategic Education, Inc. released its 2024 annual report, providing a detailed look at the company’s performance and strategic direction. The company reported fourth-quarter earnings that did not meet analyst expectations, with adjusted earnings per share at $1.27, below the forecasted $1.43. Revenue for the quarter was $311.5 million, falling short of the projected $315.58 million. Despite a 3% increase in student enrollment, the U.S. Higher Education segment experienced a 1.5% revenue decline. However, the Education Technology Services segment showed significant growth, with revenue increasing by 39.3% due to a rise in Sophia Learning subscriptions and employer partnerships.
Strategic Education also announced a change in its financial oversight, appointing Deloitte & Touche LLP as its new auditor for the fiscal year ending December 31, 2025. This decision followed a routine review of accounting firm arrangements, with no disagreements reported with the former auditor, PricewaterhouseCoopers LLP. Truist Securities maintained a Buy rating for Strategic Education, citing the stock’s underperformance compared to its peers as a potential opportunity for investors. The firm continues to hold its 2025 adjusted earnings per share estimates, expecting concerns about future expectations to ease in the coming quarters.
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