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Strayer Education Inc (NASDAQ:STRA), the parent company of Strayer University, announced a merger agreement with Capella Education Company (NASDAQ:CPLA), the owner of the online college Capella University, in October.
The Analyst
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Piper Jaffray's Peter Appert upgraded Strayer Education's stock from Neutral to Overweight with a price target raised from $96 to $118. The analyst upgraded Capella Education's stock rating from Neutral to Overweight with a price target raised from $88 to $103.
The Thesis
The merger agreement between Strayer Education and Capella Education has yet to close, but the stocks are trading in tandem — one share of Capella will be swapped for 0.875 shares of Strayer — with the merger agreement, Appert said in the upgrade note. (See the analyst's track record here.)
This is likely due to expectations that the combination of both companies into one will create a "larger, more profitable, and strategically well-positioned" education company that can generate "sharp" EPS gains in the coming years, the analyst said.
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The combined entity would mix Strayer's extensive corporate partnerships, the Jack Welsh Management Institute-branded MBA program and a campus network mostly in mid-Atlantic and southern states, according to Piper Jaffray. Capella will contribute its graduate-level programs in social and behavior sciences and education.
The combined entity would boast a "fortress" cash balance of around $15 per share with zero debt on the balance sheet, Appert said. Annual free cash flow should at the very least equal EPS and deliver upside to the $50 million of targeted synergies and 20-to-25-percent EPS accretion, he said.
Price Action
Strayer Education shares were up 0.86 percent at $90.44 at the time of publication Monday, while Capella shares were up 1.22 percent at $78.85.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.