Intrinsic value of Strayer Education - STRA

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$88.14

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$88.14

 
Intrinsic value

$94.55

 
Up/down potential

+7%

 
Rating

hold

 
Value-price divergence* premium content

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*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 1.0

 

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
  4.40
  4.46
  4.51
  4.56
  4.61
  4.65
  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
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
Revenue, $m
  441
  460
  481
  503
  526
  550
  575
  602
  631
  661
  692
  725
  760
  797
  835
  876
  919
  964
  1,011
  1,061
  1,113
  1,168
  1,225
  1,286
  1,349
  1,416
  1,486
  1,560
  1,638
  1,719
  1,804
Variable operating expenses, $m
 
  387
  404
  422
  442
  462
  483
  506
  529
  554
  581
  606
  636
  666
  699
  733
  768
  806
  845
  887
  931
  976
  1,025
  1,075
  1,128
  1,184
  1,243
  1,305
  1,369
  1,437
  1,509
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
  387
  404
  422
  442
  462
  483
  506
  529
  554
  581
  606
  636
  666
  699
  733
  768
  806
  845
  887
  931
  976
  1,025
  1,075
  1,128
  1,184
  1,243
  1,305
  1,369
  1,437
  1,509
Operating income, $m
  57
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
  119
  124
  130
  137
  143
  150
  158
  166
  174
  182
  191
  201
  211
  221
  232
  243
  255
  268
  281
  295
EBITDA, $m
  75
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  201
  211
  221
  232
  243
  255
  268
  281
  295
  310
  325
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
Earnings before tax, $m
  57
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
  204
  214
  224
  235
  246
  258
  271
  284
Tax expense, $m
  22
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  41
  43
  46
  48
  50
  52
  55
  58
  60
  63
  66
  70
  73
  77
Net income, $m
  35
  54
  56
  58
  61
  64
  67
  70
  73
  76
  80
  85
  89
  93
  98
  102
  107
  112
  117
  123
  129
  135
  142
  149
  156
  163
  171
  180
  189
  198
  207

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
  177
  185
  194
  203
  212
  222
  232
  243
  255
  267
  280
  293
  307
  322
  338
  354
  372
  390
  409
  429
  450
  472
  496
  520
  546
  573
  601
  631
  663
  696
Adjusted assets (=assets-cash), $m
  170
  177
  185
  194
  203
  212
  222
  232
  243
  255
  267
  280
  293
  307
  322
  338
  354
  372
  390
  409
  429
  450
  472
  496
  520
  546
  573
  601
  631
  663
  696
Revenue / Adjusted assets
  2.594
  2.599
  2.600
  2.593
  2.591
  2.594
  2.590
  2.595
  2.597
  2.592
  2.592
  2.589
  2.594
  2.596
  2.593
  2.592
  2.596
  2.591
  2.592
  2.594
  2.594
  2.596
  2.595
  2.593
  2.594
  2.593
  2.593
  2.596
  2.596
  2.593
  2.592
Average production assets, $m
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  123
  129
  136
  143
  150
Working capital, $m
  101
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
Total debt, $m
  0
  5
  10
  16
  21
  27
  34
  41
  48
  55
  63
  72
  80
  90
  99
  110
  120
  132
  143
  156
  169
  183
  197
  213
  229
  245
  263
  282
  301
  322
  343
Total liabilities, $m
  110
  116
  121
  127
  132
  138
  145
  152
  159
  166
  174
  183
  191
  201
  210
  221
  231
  243
  254
  267
  280
  294
  308
  324
  340
  356
  374
  393
  412
  433
  454
Total equity, $m
  188
  62
  64
  67
  70
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
  117
  123
  129
  135
  142
  149
  156
  164
  172
  180
  189
  199
  209
  219
  230
  241
Total liabilities and equity, $m
  298
  178
  185
  194
  202
  212
  222
  233
  243
  254
  267
  280
  293
  308
  322
  338
  354
  372
  389
  409
  429
  450
  472
  496
  520
  545
  573
  602
  631
  663
  695
Debt-to-equity ratio
  0.000
  0.080
  0.160
  0.230
  0.300
  0.370
  0.440
  0.500
  0.570
  0.630
  0.680
  0.740
  0.790
  0.840
  0.890
  0.930
  0.980
  1.020
  1.060
  1.100
  1.140
  1.170
  1.200
  1.240
  1.270
  1.300
  1.320
  1.350
  1.380
  1.400
  1.420
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
  54
  56
  58
  61
  64
  67
  70
  73
  76
  80
  85
  89
  93
  98
  102
  107
  112
  117
  123
  129
  135
  142
  149
  156
  163
  171
  180
  189
  198
  207
Depreciation, amort., depletion, $m
  18
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
Funds from operations, $m
  36
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  141
  148
  155
  162
  170
  178
  187
  196
  206
  216
  226
  237
Change in working capital, $m
  -9
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from operations, $m
  45
  101
  67
  70
  73
  76
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  201
  210
  221
  231
  243
Maintenance CAPEX, $m
  0
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
New CAPEX, $m
  -13
  -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
  -6
  -7
  -7
Cash from investing activities, $m
  -21
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -14
  -14
  -15
  -16
  -16
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -30
  -31
  -32
  -34
  -36
Free cash flow, $m
  24
  92
  58
  60
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
  142
  148
  156
  163
  171
  180
  188
  198
  207
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  22
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
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  22
Total cash flow (excl. dividends), $m
  22
  97
  63
  66
  69
  72
  75
  78
  82
  86
  90
  93
  98
  102
  107
  112
  118
  123
  129
  135
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
Retained Cash Flow (-), $m
  -45
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -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
 
  223
  60
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
  142
  148
  156
  163
  171
  179
  188
  197
  207
  217
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
 
  214
  55
  55
  54
  53
  52
  51
  49
  47
  45
  42
  40
  37
  34
  31
  28
  26
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  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 27.9
Price to Sales 2.2
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 21.7
Price to Free Cash Flow 30.5
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 4.4% 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 11.043 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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Stock chart of STRA Financial statements of STRA Annual reports 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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