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Truist Securities analysts have maintained a Buy rating for Strategic Education (NASDAQ:STRA) stock with a price target of $120.00. Following a significant sell-off last week, the analysts at Truist view the current situation as an attractive risk/reward opportunity for investors. They believe the skepticism surrounding the company’s long-term (LT) targets and its valuation, which is currently at a 43% discount compared to its peers, could lead to potential outperformance.
The securities firm highlights that Strategic Education’s stock has underperformed against its For-Profit Education (For-Profit Edu) peers by approximately 22 percentage points year-to-date (YTD). This underperformance, coupled with low expectations, is seen as an opportunity to accumulate shares. Truist analysts point out that the stock’s 17% decline after the company reported mixed results for the fourth quarter (4Q) last week was an overreaction. The broader S&P 500 index was down only 1.8% in the same period.
The analysts believe the sell-off was driven by three main factors: opaque comments regarding 2025 expectations made during the live 4Q earnings call, a deceleration in enrollment growth, and ongoing uncertainty around regulations for international students in Australia. Truist Securities decided to maintain their 2025 adjusted earnings per share (EPS) estimates for Strategic Education despite these concerns, anticipating that doubts about the 2025 estimates will diminish over the next few quarters.
The current trading price of Strategic Education represents a 43% enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) discount on 2025 estimates, according to Truist’s analysis. This discount is seen as unusual when compared to the company’s industry peers. The analysts suggest that the stock’s reaction to the mixed fourth-quarter results was too punitive and has created an opportunity for investors.
In other recent news, Strategic Education reported fourth-quarter earnings that did not meet analyst expectations. The company posted adjusted earnings per share of $1.27, falling short of the consensus estimate of $1.43. Revenue for the quarter was $311.5 million, which was below the projected $315.58 million, though it still marked a 2.9% increase year-over-year. Strategic Education’s U.S. Higher Education segment experienced a 1.5% revenue decline to $214.3 million, despite a 3% rise in student enrollment. On a positive note, the Education Technology Services segment saw a 39.3% revenue increase, driven by Sophia Learning subscriptions and employer partnerships. For the full year 2024, the company reported a 7.7% increase in revenue to $1.22 billion and adjusted earnings per share of $4.87. In another development, Strategic Education announced a change in its auditing firm, appointing Deloitte & Touche LLP as its new independent auditor for the fiscal year ending December 31, 2025. This decision followed a regular review of accounting firm arrangements, with no disagreements reported between the company and the outgoing auditor, PricewaterhouseCoopers LLP.
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