On Wednesday, Truist Securities shifted its stance on Strategic Education (NASDAQ:STRA), lifting the education company's stock from Hold to Buy. Accompanying the upgrade, the firm also raised the price target to $125 from the previous $110.
The decision to upgrade the stock comes after a positive assessment of the sector's current conditions, including an uptick in enrollment momentum and a stable to improving regulatory environment. Truist Securities sees these factors as key drivers for the sector's attractiveness.
Specifically for Strategic Education, the firm anticipates that margin expansion in the U.S. Higher Education (USHE) segment could result in a 6-12% increase to the consensus 2024 earnings per share (EPS) estimates. Furthermore, the firm projects a robust 25-30% compound annual growth rate (CAGR) in EPS for Strategic Education over the next three years.
The analyst's optimism is set against the backdrop of the stock's recent performance, noting that Strategic Education's shares have seen a 12% pullback from their post-fourth quarter earnings high. This decline is contrasted with a mere 1% drop in the S&P over the same period, suggesting a more pronounced movement in Strategic Education's stock and potentially an attractive entry point for investors.
InvestingPro Insights
Following Truist Securities' upgrade of Strategic Education (NASDAQ:STRA), InvestingPro data provides a deeper dive into the company's financial health and market performance. With a market cap of $2.36 billion and a P/E ratio standing at 32.36, the company appears to be trading at a premium based on historical earnings. However, the adjusted P/E ratio for the last twelve months as of Q4 2023 is slightly lower at 28.64, suggesting a potential alignment with near-term earnings growth. The PEG ratio, which measures the P/E ratio against earnings growth, is at an attractive 0.68, indicating that the stock may be undervalued when considering its growth rate.
Strategic Education's revenue growth for the same period stands at a solid 6.33%, with a significant quarterly increase of 12.14% in Q4 2023. This aligns with Truist Securities' positive outlook on the sector's enrollment momentum. The company also boasts a robust gross profit margin of 44.93%, underlining its capacity to maintain profitability.
Among the InvestingPro Tips, it's noteworthy that analysts have revised their earnings upwards for the upcoming period and predict the company will be profitable this year. Additionally, the company has maintained dividend payments for 8 consecutive years, with a current dividend yield of 2.3%. This consistent return to shareholders complements the 15.04% three-month price total return, demonstrating the stock's strong performance in the recent quarter. Prospective investors might find these insights compelling when considering the additional 10 tips available on InvestingPro and can benefit from an additional 10% off a yearly or biyearly Pro and Pro+ subscription with the coupon code PRONEWS24.
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