Overview

Bank of America has upgraded the education stock of Strategic Education, citing stronger earnings as the reason. Analyst Heather Balsky raised her rating from neutral to buy and adjusted the price target to $90, suggesting a potential upside of 23.9% from the previous day’s closing price. Balsky believes that the company’s post-COVID recovery, improved marketing, and cost control will drive sales and margins.

Stock Performance

Following the upgrade, the stock climbed 2.2% in premarket trading on Friday. Strategic Education, the operator of multiple universities including Strayer, Capella, and Torrens, has seen a 25% decline in its stock since mid-April. However, Balsky considers this as an opportunity to invest due to the company’s attractive valuation.

Earnings Outlook

Balsky expects Strategic Education to surpass earnings expectations in the coming years. She has raised her profit expectations for 2023 and 2024. Despite processing delays for international students at its Australian college, Balsky believes the company can regain momentum. She highlights the company’s low costs and flexible opportunities that target older adults in the workforce.

Recovery Plans

The recovery for the company’s Australian and New Zealand business is anticipated in the second half of this year. In the U.S., Strayer is gradually recovering from the pandemic and experiencing positive growth. Balsky suggests that further reopening in Australia, improved marketing efforts, and higher prices can contribute to increased sales this year. She also predicts that margins will exceed expectations if sales growth surpasses estimates.

Risks and Outlook

While concerns have been raised about the potential increase in defaulted student loans after the end of U.S. student loan forgiveness, Balsky believes these worries are exaggerated. She considers the likelihood of the company losing federal aid funding due to high default rates as low, due to the availability of on-ramps for loans that help borrowers stay on track with their payments.

Source: HaberTusba’s Michael Bloom contributed to this report