Intrinsic value of Strayer Education - STRA

Previous Close

$93.08

  Intrinsic Value

$101.56

stock screener

  Rating & Target

hold

+9%

Previous close

$93.08

 
Intrinsic value

$101.56

 
Up/down potential

+9%

 
Rating

hold

We calculate the intrinsic value of STRA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.61
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  441
  471
  503
  536
  570
  606
  643
  682
  722
  764
  808
  853
  901
  951
  1,003
  1,058
  1,115
  1,174
  1,237
  1,302
  1,371
  1,442
  1,517
  1,596
  1,679
  1,765
  1,856
  1,951
  2,050
  2,155
  2,265
Variable operating expenses, $m
 
  396
  423
  450
  479
  509
  540
  572
  606
  641
  677
  714
  754
  795
  839
  884
  932
  982
  1,034
  1,089
  1,146
  1,206
  1,269
  1,335
  1,404
  1,476
  1,552
  1,631
  1,715
  1,802
  1,894
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  384
  396
  423
  450
  479
  509
  540
  572
  606
  641
  677
  714
  754
  795
  839
  884
  932
  982
  1,034
  1,089
  1,146
  1,206
  1,269
  1,335
  1,404
  1,476
  1,552
  1,631
  1,715
  1,802
  1,894
Operating income, $m
  57
  75
  80
  86
  91
  97
  103
  110
  116
  123
  130
  140
  148
  156
  164
  173
  183
  192
  203
  213
  224
  236
  248
  261
  275
  289
  304
  319
  336
  353
  371
EBITDA, $m
  75
  85
  91
  97
  103
  109
  116
  123
  130
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  235
  247
  260
  274
  288
  303
  318
  335
  352
  370
  389
  408
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
Earnings before tax, $m
  57
  75
  80
  85
  90
  96
  102
  108
  114
  121
  127
  137
  144
  152
  160
  168
  177
  186
  196
  206
  217
  228
  240
  252
  265
  278
  292
  307
  322
  339
  356
Tax expense, $m
  22
  20
  22
  23
  24
  26
  27
  29
  31
  33
  34
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
  96
Net income, $m
  35
  55
  58
  62
  66
  70
  74
  79
  83
  88
  93
  100
  105
  111
  117
  123
  129
  136
  143
  151
  158
  166
  175
  184
  193
  203
  213
  224
  235
  247
  260

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  129
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  299
  182
  194
  207
  220
  234
  248
  263
  278
  294
  311
  329
  347
  367
  387
  408
  430
  453
  477
  502
  528
  556
  585
  615
  647
  680
  715
  752
  790
  831
  873
Adjusted assets (=assets-cash), $m
  170
  182
  194
  207
  220
  234
  248
  263
  278
  294
  311
  329
  347
  367
  387
  408
  430
  453
  477
  502
  528
  556
  585
  615
  647
  680
  715
  752
  790
  831
  873
Revenue / Adjusted assets
  2.594
  2.588
  2.593
  2.589
  2.591
  2.590
  2.593
  2.593
  2.597
  2.599
  2.598
  2.593
  2.597
  2.591
  2.592
  2.593
  2.593
  2.592
  2.593
  2.594
  2.597
  2.594
  2.593
  2.595
  2.595
  2.596
  2.596
  2.594
  2.595
  2.593
  2.595
Average production assets, $m
  37
  39
  42
  44
  47
  50
  53
  57
  60
  63
  67
  71
  75
  79
  83
  88
  93
  97
  103
  108
  114
  120
  126
  132
  139
  146
  154
  162
  170
  179
  188
Working capital, $m
  101
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -136
  -143
Total debt, $m
  0
  8
  16
  24
  33
  41
  51
  61
  71
  81
  92
  104
  116
  128
  142
  155
  170
  185
  200
  217
  234
  252
  271
  291
  312
  333
  356
  380
  405
  431
  459
Total liabilities, $m
  110
  119
  127
  135
  144
  152
  162
  172
  182
  192
  203
  215
  227
  239
  253
  266
  281
  296
  311
  328
  345
  363
  382
  402
  423
  444
  467
  491
  516
  542
  570
Total equity, $m
  188
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  114
  121
  127
  134
  141
  149
  157
  165
  174
  183
  193
  203
  214
  225
  236
  248
  261
  274
  288
  303
Total liabilities and equity, $m
  298
  182
  194
  207
  220
  233
  248
  263
  279
  294
  311
  329
  348
  366
  387
  407
  430
  453
  476
  502
  528
  556
  585
  616
  648
  680
  715
  752
  790
  830
  873
Debt-to-equity ratio
  0.000
  0.120
  0.230
  0.330
  0.430
  0.510
  0.590
  0.660
  0.730
  0.800
  0.850
  0.910
  0.960
  1.010
  1.050
  1.100
  1.140
  1.180
  1.210
  1.240
  1.280
  1.310
  1.330
  1.360
  1.390
  1.410
  1.430
  1.460
  1.480
  1.500
  1.520
Adjusted equity ratio
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  55
  58
  62
  66
  70
  74
  79
  83
  88
  93
  100
  105
  111
  117
  123
  129
  136
  143
  151
  158
  166
  175
  184
  193
  203
  213
  224
  235
  247
  260
Depreciation, amort., depletion, $m
  18
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  14
  15
  16
  17
  18
  19
  19
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
Funds from operations, $m
  36
  65
  69
  73
  78
  82
  87
  92
  97
  103
  108
  114
  120
  127
  133
  140
  148
  156
  164
  172
  181
  190
  200
  210
  221
  232
  244
  256
  269
  283
  297
Change in working capital, $m
  -9
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  45
  67
  71
  75
  80
  84
  89
  94
  100
  105
  111
  117
  123
  130
  137
  144
  151
  159
  168
  176
  185
  195
  205
  215
  226
  238
  250
  262
  276
  290
  304
Maintenance CAPEX, $m
  0
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
New CAPEX, $m
  -13
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -21
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -17
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -24
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -40
  -43
  -45
Free cash flow, $m
  24
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  99
  105
  111
  116
  123
  129
  136
  143
  150
  158
  166
  175
  184
  193
  203
  213
  224
  235
  247
  259
Issuance/(repayment) of debt, $m
  0
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Total cash flow (excl. dividends), $m
  22
  64
  68
  72
  77
  81
  86
  90
  95
  100
  106
  111
  117
  123
  130
  136
  143
  151
  159
  167
  175
  184
  194
  203
  214
  225
  236
  248
  260
  273
  287
Retained Cash Flow (-), $m
  -45
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
Prev. year cash balance distribution, $m
 
  129
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  189
  64
  68
  72
  76
  81
  85
  90
  95
  100
  105
  111
  116
  123
  129
  136
  143
  150
  158
  166
  175
  184
  193
  203
  213
  224
  235
  247
  259
  272
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  182
  59
  59
  59
  59
  59
  58
  56
  55
  52
  50
  47
  44
  41
  38
  35
  31
  28
  24
  21
  18
  15
  13
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Strayer Education, Inc. is an education services holding company. The Company provides post-secondary education and other academic programs, through its subsidiaries, Strayer University (the University) and New York Code and Design Academy (NYCDA). As of December 31, 2016, the University offered undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, nursing, public administration and criminal justice at 74 physical campuses located in the Mid-Atlantic and Southern regions of the United States, and online. The University also offers an executive Master of Business Administration (MBA) online through its Jack Welch Management Institute. Its subsidiary, NYCDA, provides non-degree courses in Web and application software development, primarily at its campus in New York City. Each undergraduate degree program includes courses in oral and written communication skills, as well as mathematics.

FINANCIAL RATIOS  of  Strayer Education (STRA)

Valuation Ratios
P/E Ratio 29.5
Price to Sales 2.3
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 22.9
Price to Free Cash Flow 32.3
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 7.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.8%
Ret/ On Assets - 3 Yr. Avg. 14.5%
Return On Total Capital 21.1%
Ret/ On T. Cap. - 3 Yr. Avg. 22.8%
Return On Equity 21.1%
Return On Equity - 3 Yr. Avg. 41.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 45.4%
Gross Margin - 3 Yr. Avg. 46.2%
EBITDA Margin 17%
EBITDA Margin - 3 Yr. Avg. 19.4%
Operating Margin 12.9%
Oper. Margin - 3 Yr. Avg. 15.7%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 15.1%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 38.6%
Eff/ Tax Rate - 3 Yr. Avg. 39.4%
Payout Ratio 0%

STRA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STRA stock intrinsic value calculation we used $441 million for the last fiscal year's total revenue generated by Strayer Education. The default revenue input number comes from 2016 income statement of Strayer Education. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our STRA stock valuation model: a) initial revenue growth rate of 6.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for STRA is calculated based on our internal credit rating of Strayer Education, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Strayer Education.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of STRA stock the variable cost ratio is equal to 84.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for STRA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Strayer Education.

Corporate tax rate of 27% is the nominal tax rate for Strayer Education. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the STRA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for STRA are equal to 8.3%.

Life of production assets of 2.8 years is the average useful life of capital assets used in Strayer Education operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for STRA is equal to -6.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $188 million for Strayer Education - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 11.275 million for Strayer Education is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Strayer Education at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

▶ Strayer Education Hits 80-Plus Relative Strength Rating Benchmark   [Dec-07-17 03:00AM  Investor's Business Daily]
▶ [$$] Strayer Education and Capella Education to Merge   [12:31AM  The Wall Street Journal]
▶ Lennar, Strayer, Dynegy Announce Deals; These May Be Next   [Oct-30-17 04:06PM  Investor's Business Daily]
▶ Strayer Education buys Capella   [04:03PM  American City Business Journals]
▶ [$$] Strayer Education and Capella Education to Merge   [09:28AM  The Wall Street Journal]
▶ Strayer strikes $1.9B merger deal with Minneapolis online university   [09:23AM  American City Business Journals]
▶ Strayer Education posts 3Q profit   [06:15AM  Associated Press]
▶ [$$] Strayer Education, Capella Education Near Merger Deal   [Oct-29-17 11:20PM  The Wall Street Journal]
▶ [$$] Strayer Education, Capella Education Near Merger Deal   [09:37PM  The Wall Street Journal]
▶ New Strong Sell Stocks for August 24th   [Aug-24-17 08:57AM  Zacks]
▶ New Strong Sell Stocks for August 14th   [Aug-14-17 08:02AM  Zacks]
▶ Strayer Education posts 2Q profit   [Jul-26-17 09:28PM  Associated Press]
▶ Strayer Education posts 1Q profit   [06:38AM  Associated Press]
▶ New Strong Sell Stocks for March 17th   [Mar-17-17 08:57AM  Zacks]
▶ Acquire These Skills to Preserve Your Job in 2017   [Feb-07-17 08:00AM  Business Wire]
▶ Is Pzena Investment Management, Inc. (PZN) A Good Stock to Buy?   [Dec-16-16 07:42PM  at Insider Monkey]
▶ Is Strayer Education Inc (STRA) Going to Burn These Hedge Funds?   [Dec-12-16 09:26AM  at Insider Monkey]
Financial statements of STRA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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