Intrinsic value of Strategic Education - STRA

Previous Close

$137.89

  Intrinsic Value

$61.14

stock screener

  Rating & Target

str. sell

-56%

Previous close

$137.89

 
Intrinsic value

$61.14

 
Up/down potential

-56%

 
Rating

str. sell

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 0001), $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 1.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  464
  475
  487
  501
  516
  532
  550
  570
  591
  614
  638
  664
  692
  721
  752
  785
  820
  857
  896
  937
  980
  1,026
  1,074
  1,125
  1,179
  1,235
  1,295
  1,357
  1,423
  1,492
Variable operating expenses, $m
  404
  413
  423
  435
  448
  463
  478
  495
  514
  533
  552
  575
  599
  624
  651
  679
  710
  742
  775
  811
  848
  888
  930
  974
  1,020
  1,069
  1,120
  1,175
  1,231
  1,291
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
  404
  413
  423
  435
  448
  463
  478
  495
  514
  533
  552
  575
  599
  624
  651
  679
  710
  742
  775
  811
  848
  888
  930
  974
  1,020
  1,069
  1,120
  1,175
  1,231
  1,291
Operating income, $m
  60
  62
  63
  65
  67
  70
  72
  75
  77
  81
  86
  89
  93
  97
  101
  106
  110
  115
  121
  126
  132
  138
  145
  151
  159
  166
  174
  183
  191
  201
EBITDA, $m
  80
  81
  83
  86
  88
  91
  94
  98
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
Earnings before tax, $m
  60
  62
  63
  65
  67
  69
  71
  73
  76
  79
  84
  87
  90
  94
  98
  102
  106
  110
  115
  120
  126
  131
  137
  143
  150
  157
  164
  171
  179
  188
Tax expense, $m
  16
  17
  17
  18
  18
  19
  19
  20
  21
  21
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
Net income, $m
  44
  45
  46
  47
  49
  50
  52
  54
  55
  57
  61
  63
  66
  69
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  239
  245
  251
  258
  266
  274
  284
  294
  305
  316
  329
  342
  356
  371
  387
  404
  422
  441
  462
  483
  505
  529
  554
  580
  607
  636
  667
  699
  733
  769
Adjusted assets (=assets-cash), $m
  239
  245
  251
  258
  266
  274
  284
  294
  305
  316
  329
  342
  356
  371
  387
  404
  422
  441
  462
  483
  505
  529
  554
  580
  607
  636
  667
  699
  733
  769
Revenue / Adjusted assets
  1.941
  1.939
  1.940
  1.942
  1.940
  1.942
  1.937
  1.939
  1.938
  1.943
  1.939
  1.942
  1.944
  1.943
  1.943
  1.943
  1.943
  1.943
  1.939
  1.940
  1.941
  1.940
  1.939
  1.940
  1.942
  1.942
  1.942
  1.941
  1.941
  1.940
Average production assets, $m
  85
  87
  90
  92
  95
  98
  101
  105
  109
  113
  117
  122
  127
  133
  138
  144
  151
  158
  165
  172
  180
  189
  198
  207
  217
  227
  238
  250
  262
  275
Working capital, $m
  -35
  -36
  -37
  -38
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -50
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
Total debt, $m
  2
  5
  8
  11
  15
  19
  23
  28
  34
  39
  45
  51
  58
  65
  73
  81
  90
  99
  109
  119
  129
  141
  153
  165
  178
  192
  207
  222
  238
  255
Total liabilities, $m
  114
  117
  120
  123
  127
  131
  136
  140
  146
  151
  157
  164
  170
  178
  185
  193
  202
  211
  221
  231
  241
  253
  265
  277
  290
  304
  319
  334
  350
  367
Total equity, $m
  125
  128
  131
  135
  139
  143
  148
  153
  159
  165
  172
  179
  186
  194
  202
  211
  221
  230
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  383
  401
Total liabilities and equity, $m
  239
  245
  251
  258
  266
  274
  284
  293
  305
  316
  329
  343
  356
  372
  387
  404
  423
  441
  462
  483
  505
  529
  554
  580
  607
  636
  667
  699
  733
  768
Debt-to-equity ratio
  0.020
  0.040
  0.060
  0.080
  0.110
  0.130
  0.160
  0.180
  0.210
  0.240
  0.260
  0.290
  0.310
  0.340
  0.360
  0.380
  0.410
  0.430
  0.450
  0.470
  0.490
  0.510
  0.530
  0.550
  0.560
  0.580
  0.590
  0.610
  0.620
  0.640
Adjusted equity ratio
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  44
  45
  46
  47
  49
  50
  52
  54
  55
  57
  61
  63
  66
  69
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
Depreciation, amort., depletion, $m
  19
  20
  20
  20
  21
  22
  22
  23
  24
  25
  23
  24
  25
  27
  28
  29
  30
  32
  33
  34
  36
  38
  40
  41
  43
  45
  48
  50
  52
  55
Funds from operations, $m
  63
  65
  66
  68
  70
  72
  74
  77
  79
  82
  85
  88
  91
  95
  99
  103
  108
  112
  117
  122
  128
  133
  140
  146
  153
  160
  167
  175
  183
  192
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from operations, $m
  64
  65
  67
  69
  71
  73
  76
  78
  81
  84
  86
  90
  93
  97
  101
  106
  110
  115
  120
  125
  131
  137
  143
  150
  157
  164
  172
  180
  188
  197
Maintenance CAPEX, $m
  -17
  -17
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
New CAPEX, $m
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
Cash from investing activities, $m
  -19
  -19
  -19
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -33
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -51
  -53
  -56
  -59
  -62
  -65
Free cash flow, $m
  46
  46
  47
  48
  50
  51
  53
  54
  56
  58
  59
  62
  64
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  105
  110
  115
  121
  126
  132
Issuance/(repayment) of debt, $m
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
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
Cash from financing (excl. dividends), $m  
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
Total cash flow (excl. dividends), $m
  48
  49
  50
  52
  53
  55
  57
  59
  61
  64
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  143
  149
Retained Cash Flow (-), $m
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
Prev. year cash balance distribution, $m
  87
  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
  132
  46
  47
  48
  49
  51
  52
  54
  56
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  131
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
  127
  42
  41
  40
  38
  37
  35
  34
  32
  30
  28
  26
  24
  22
  20
  18
  16
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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  Strategic Education (STRA)

Valuation Ratios
P/E Ratio 43.7
Price to Sales 3.5
Price to Book 8.1
Price to Tangible Book
Price to Cash Flow 34
Price to Free Cash Flow 47.8
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 $454.851 million for the last fiscal year's total revenue generated by Strategic Education. The default revenue input number comes from 0001 income statement of Strategic 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 2% 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 Strategic 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 Strategic 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 87%.

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 5.4% for Strategic Education.

Corporate tax rate of 27% is the nominal tax rate for Strategic 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 18.4%.

Life of production assets of 5 years is the average useful life of capital assets used in Strategic 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 -7.6%. 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 - $209.197 million for Strategic 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 11.301 million for Strategic 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 Strategic Education at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ Strayer parent launches seed-stage venture fund. Its first focus: better writing.   [Oct-29-18 08:16AM  American City Business Journals]
▶ Strayer University Opens Montgomery Campus   [Sep-25-18 03:01PM  Business Wire]
▶ Who Really Owns Strategic Education Inc (NASDAQ:STRA)?   [Sep-04-18 12:06PM  Simply Wall St.]
▶ Pencils down: Strayer completes 'merger of equals' with Minneapolis education firm   [Aug-03-18 02:46PM  American City Business Journals]
▶ Strayer Education: 2Q Earnings Snapshot   [06:47AM  Associated Press]
▶ Bonanza Creek Energy Set to Join S&P SmallCap 600   [Jul-25-18 06:36PM  PR Newswire]
▶ Is Strayer Education Inc (NASDAQ:STRA) Undervalued?   [Jun-22-18 03:55PM  Simply Wall St.]
▶ Top Ranked Growth Stocks to Buy for June 8th   [Jun-08-18 09:27AM  Zacks]
▶ Stocks With Rising Relative Price Strength: Strayer Education   [03:00AM  Investor's Business Daily]
▶ Top Ranked Growth Stocks to Buy for May 22nd   [May-22-18 10:35AM  Zacks]
▶ Strayer Education: 1Q Earnings Snapshot   [May-02-18 06:39AM  Associated Press]
▶ Strayer Education reports 4Q loss   [Mar-01-18 06:01PM  Associated Press]
▶ 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]

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