UPDATE: Bank of America Merrill Lynch Downgrades Strayer Education
In a report published Friday, Bank of America Merrill Lynch analyst David Chu downgraded Strayer Education (NASDAQ: STRA) to Underperform from Neutral on earnings risks and valuation, with a $35.00 price objective.
According to the report, investor sentiment around education stocks is improving, but analysts see continued risks for STRA.
“These include: 1.) potential for downward earnings revisions, 2.) weak demand for bachelors degrees, 3.) significant competition, and 4.) permanent cut to profitability given recent tuition cuts (20% cut for new undergrad students on top of a 25% discount based on retention),” the report noted. “Following a 39% move down in 2013, STRA shares are up 22% YTD. STRA trades at 42x 2015E EPS and 29X 2016E versus a group median of 22x in 2015E. This seems high given weak fundamentals and earnings risk. We are lowering our target by $7 to $35 (35x our CY15E trough EPS).”
STRA closed Thursday at $41.98 with shares trading up at 2.19 percent.
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