It's rare to find a firm that has never missed an earnings target. For-profit educator Strayer (Nasdaq: STRA ) , for example, hasn't "missed earnings" once on this side of the millennium -- and it's been five years since the firm even stooped to merely meet expectations. On Thursday morning, the firm tries to keep its streak alive as it reports its fourth-quarter and full-year 2006 numbers.
What analysts say:
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Buy, sell, or waffle? Fourteen analysts study Strayer. "Buy" and "hold" ratings get six votes each, with an additional two sells.
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Revenues. On average, analysts believe quarterly sales rose 19% to $73.9 million.
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Earnings. Profits are predicted to climb 5% to $1.08 per share.
What management says:
Everything's very much "steady as she goes" at Strayer. In 2006, the company opened eight new campuses. It expects to open eight more in 2007. Last January, Strayer bumped up its tuition rates 5%, with another 5% slated for this January. Revenues through the end of the third quarter grew 19% year over year, and Strayer expects 18% to 19% revenue growth in 2007 as well. I have to admit -- it makes for a pretty easy-to-understand business model, if a bit on the boring side.
What management does:
Things get interesting -- or as close to interesting as Strayer approaches -- in margins. In contrast to the steady expansion of the firm's top line, and a steadily expanding rolling gross as well, Strayer's operating and net margins continue to erode as the firm (1) continues building out its network of campuses, and (2) begins expensing its stock options.
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Margins
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6/05
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9/05
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12/05
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3/06
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6/06
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9/06
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Gross
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65.0%
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65.0%
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65.1%
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65.3%
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65.7%
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65.7%
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Operating
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35.0%
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34.3%
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34.0%
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34.0%
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34.2%
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33.5%
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Net
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22.3%
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22.0%
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21.8%
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21.6%
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21.3%
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20.4%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Strayer has done so well, for so long, that I'm hesitant to quibble with the firm's performance at all. But even the best of businesses usually contain at least a little room for improvement. At Strayer, I've found three spots where I'd like to see the firm tighten up its operations a bit.
First, accounts receivable have outpaced sales growth over the last two quarters, rising 30% in comparison to 20% sales growth. Second, and related to the first, Strayer pointed out in last quarter's release that days sales outstanding, "adjusted to exclude tuition receivable related to future quarters, was 10 days at the end of the third quarter of 2006, compared to eight days at the end of the same period in 2005."
I don't find this particularly worrying, because after reviewing the trend on Capital IQ, I've noticed that the company's DSO number tends to spike at the end of most third quarters, only to subsequently subside. (Still, we'd like to see that trend manifest itself again tomorrow.)
Finally, Strayer has also observed a rise in bad debt as a proportion of revenue, from 2.5% at the end of Q3 2005 to 3.2% by Q3 2006. Relatively speaking, that's a 28% rise year over year, and yet another thing we'd like to see subside. Here's hoping that tomorrow, we do.
Competitors
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Apollo Group (Nasdaq: APOL )
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Career Education (Nasdaq: CECO )
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Corinthian Colleges (Nasdaq: COCO )
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DeVry (NYSE: DV )
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ITT Educational (NYSE: ESI )
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Laureate (Nasdaq: LAUR )
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Fool contributor Rich Smith does not own shares of any company named above.
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