Truist Securities analyst Jasper Bibb upgraded the shares of Strategic Education Inc (NASDAQ:STRA) from Hold to Buy and raised the price target from $110 to $125.

The analyst is encouraged by the strong backdrop for enrollment growth in U.S. working adult education and a high fixed cost model which should reap outsized margin benefits from growing enrollments.

The analyst anticipates upside estimate revisions over the balance of 2024 with a potential multiple expansion catalyst if Republicans retake the White House in November.

The analyst views 2024 outlook as conservative and could see 6% – 12% upside to 2024 EPS consensus.

Management has cited strong enrollment growth at both Strayer/Capella and efforts to scale the corporate channel appear to be bearing fruit with corporate sponsored enrollments up 24% y/y last quarter, noted the analyst.

The analyst views rebounding to pre-COVID margins in USHE as the primary driver of earnings growth for STRA over the next 3-5 years. 

The analyst estimates enrollment exceeding 2020 levels in 2026 and a 15% segment operating margin driving a 25%-30% EPS CAGR over the next three years.

The analyst sees a Trump win in November could be a catalyst for multiple expansion as STRA traded at an average forward EV/EBITDA multiple of 10.7x during the Trump administration vs. 9.7x on average during the Biden administration. 

The analyst also highlighted STRA’s healthy net cash position of $147 million and a fairly rich dividend yield of 2.5%.

Price Action: STRA shares are trading higher by 1.61% at $98.26 on the last check Wednesday.

Image: Shutterstock/ MD Duran