Intrinsic value of Strayer Education - STRA

Previous Close

$78.79

  Intrinsic Value

$87.10

stock screener

  Rating & Target

hold

+11%

  Value-price divergence*

+50%

Previous close

$78.79

 
Intrinsic value

$87.10

 
Up/down potential

+11%

 
Rating

hold

 
Value-price divergence*

+50%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.9

 

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
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  441
  457
  474
  492
  512
  533
  555
  579
  604
  630
  658
  688
  719
  753
  787
  824
  863
  904
  947
  993
  1,040
  1,091
  1,143
  1,199
  1,257
  1,319
  1,384
  1,451
  1,523
  1,598
  1,677
Variable operating expenses, $m
 
  384
  398
  414
  430
  448
  466
  486
  507
  529
  553
  575
  602
  629
  659
  689
  722
  756
  792
  830
  870
  912
  956
  1,003
  1,052
  1,103
  1,157
  1,214
  1,273
  1,336
  1,402
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
  384
  398
  414
  430
  448
  466
  486
  507
  529
  553
  575
  602
  629
  659
  689
  722
  756
  792
  830
  870
  912
  956
  1,003
  1,052
  1,103
  1,157
  1,214
  1,273
  1,336
  1,402
Operating income, $m
  57
  73
  76
  79
  82
  85
  89
  93
  97
  101
  106
  113
  118
  123
  129
  135
  141
  148
  155
  163
  170
  179
  187
  196
  206
  216
  227
  238
  249
  262
  275
EBITDA, $m
  75
  79
  82
  85
  88
  92
  95
  100
  104
  108
  113
  118
  124
  129
  135
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  250
  262
  275
  289
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
Earnings before tax, $m
  57
  73
  75
  78
  81
  85
  88
  92
  96
  100
  104
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  173
  182
  190
  199
  209
  219
  229
  240
  252
  264
Tax expense, $m
  22
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
Net income, $m
  35
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  81
  84
  88
  92
  96
  101
  105
  110
  115
  121
  127
  133
  139
  145
  152
  160
  167
  176
  184
  193

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
  176
  183
  190
  197
  205
  214
  223
  233
  243
  254
  265
  277
  290
  304
  318
  333
  349
  365
  383
  401
  420
  441
  462
  485
  508
  533
  560
  587
  616
  646
Adjusted assets (=assets-cash), $m
  170
  176
  183
  190
  197
  205
  214
  223
  233
  243
  254
  265
  277
  290
  304
  318
  333
  349
  365
  383
  401
  420
  441
  462
  485
  508
  533
  560
  587
  616
  646
Revenue / Adjusted assets
  2.594
  2.597
  2.590
  2.589
  2.599
  2.600
  2.593
  2.596
  2.592
  2.593
  2.591
  2.596
  2.596
  2.597
  2.589
  2.591
  2.592
  2.590
  2.595
  2.593
  2.594
  2.598
  2.592
  2.595
  2.592
  2.596
  2.597
  2.591
  2.595
  2.594
  2.596
Average production assets, $m
  37
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
  75
  79
  82
  86
  91
  95
  100
  104
  109
  115
  120
  126
  133
  139
Working capital, $m
  101
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -101
  -106
Total debt, $m
  0
  4
  8
  13
  18
  23
  29
  35
  41
  48
  55
  62
  70
  78
  87
  97
  106
  117
  127
  139
  151
  164
  177
  191
  206
  221
  237
  254
  272
  291
  311
Total liabilities, $m
  110
  115
  119
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
  189
  198
  208
  217
  228
  238
  250
  262
  275
  288
  302
  317
  332
  348
  365
  383
  402
  422
Total equity, $m
  188
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  105
  110
  115
  121
  127
  133
  139
  146
  153
  160
  168
  176
  185
  194
  204
  214
  224
Total liabilities and equity, $m
  298
  176
  182
  190
  197
  205
  214
  223
  233
  243
  254
  265
  277
  290
  303
  318
  332
  349
  365
  383
  401
  421
  441
  462
  485
  508
  533
  559
  587
  616
  646
Debt-to-equity ratio
  0.000
  0.070
  0.130
  0.200
  0.260
  0.320
  0.390
  0.450
  0.510
  0.570
  0.620
  0.680
  0.730
  0.780
  0.830
  0.880
  0.920
  0.960
  1.010
  1.050
  1.080
  1.120
  1.160
  1.190
  1.220
  1.250
  1.280
  1.310
  1.340
  1.360
  1.390
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
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  81
  84
  88
  92
  96
  101
  105
  110
  115
  121
  127
  133
  139
  145
  152
  160
  167
  176
  184
  193
Depreciation, amort., depletion, $m
  18
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Funds from operations, $m
  36
  59
  61
  63
  66
  68
  71
  74
  77
  80
  84
  87
  90
  94
  99
  103
  108
  113
  118
  124
  129
  136
  142
  149
  156
  163
  171
  180
  188
  197
  207
Change in working capital, $m
  -9
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from operations, $m
  45
  60
  62
  64
  67
  70
  72
  75
  78
  82
  85
  88
  92
  97
  101
  105
  110
  115
  121
  126
  132
  139
  145
  152
  160
  167
  175
  184
  193
  202
  212
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
New CAPEX, $m
  -13
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -21
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Free cash flow, $m
  24
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
Issuance/(repayment) of debt, $m
  0
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
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
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  22
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  88
  92
  96
  101
  105
  110
  115
  121
  126
  132
  139
  145
  152
  159
  167
  175
  184
  193
  202
  212
Retained Cash Flow (-), $m
  -45
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
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
 
  186
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
  201
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
 
  178
  54
  53
  52
  51
  50
  48
  47
  45
  42
  40
  37
  35
  32
  29
  27
  24
  21
  19
  16
  14
  11
  9
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
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Strayer Education, Inc., through its subsidiaries, provides a range of post-secondary education and other academic programs in the United States. The company operates Strayer University that provides undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, nursing, public administration, and criminal justice to working adult students through its 74 physical campuses primarily located in the Mid-Atlantic and Southern regions, as well as through online. It also offers an executive MBA online through its Jack Welch Management Institute. In addition, the company operates New York Code and Design Academy that provides non-degree courses in Web and application software development primarily through its campus in New York City. Strayer Education, Inc. was founded in 1892 and is headquartered in Herndon, Virginia.

FINANCIAL RATIOS  of  Strayer Education (STRA)

Valuation Ratios
P/E Ratio 25
Price to Sales 2
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 19.4
Price to Free Cash Flow 27.3
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 3.6% 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 10 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 11.106 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 $0.9 billion.

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COMPANY NEWS

▶ 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]
▶ For-Profit Colleges Look to Donald Trump for a Pass   [Dec-03-16 12:01AM  at The Wall Street Journal]
▶ [$$] For-Profit Colleges Look to Donald Trump for a Pass   [Dec-02-16 09:00AM  at The Wall Street Journal]
▶ For-Profit Colleges Look to Donald Trump for a Pass   [07:00AM  at The Wall Street Journal]
▶ Congress could undo Obama-era student loan relief   [Nov-17-16 03:26PM  Reuters]
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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