While quarterly results in 2006 and 2007 have been above expectations, Strayer Education (STRA) management's guidance for 2007 and 2008 portends continued double-digit growth in EPS. However, single-digit enrollment trends at mature campuses and a rise in the bad debt expense ratio (as the new campus expansion
program has admitted students with lower credit credentials) are unsettling.
In addition, the stock's valuation is at the upper-end of the historical range. Strayer Education is currently selling at 35.3 times trailing 12-month EPS, reflecting the company's revenue and earnings growth profile. Revenues have grown at a 22% five year compound annual growth rate (CAGR). Over the last ten years, the stock has traded in a wide P/E range of 48 to 16.
The target price is $183.25, which is a 41 P/E multiple on 12 month trailing earnings. The rating on the stock of Strayer Education remains a Hold.
Read the full analyst report on STRA.
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