Investors want to get ahead of a potential rally on shares of Strategic Education as the company’s earnings strengthen, Bank of America said. Analyst Heather Balsky upgraded the education stock to buy from neutral while pulling back her price target by $9 to $90. Still, Balsky’s price target suggested a 23.9% upside from Thursday’s close. “We see upside to sales and margins driven by its post-COVID recovery, improved marketing effectiveness, and tight cost control,” she said in a note to clients Friday. The stock climbed 2.2% in Friday premarket trading following the upgrade. Balsky said the operator of multiple universities in the U.S. and abroad — namely Strayer, Capella and Torrens — could beat expectations for earnings per share going forward. She raised her profit expectations for 2023 and 2024. She added that shares trade at an attractive valuation following an approximately 25% slide since mid-April. The stock is down 7.2% year to date. STRA YTD mountain Strategic Education, year to date Balsky said recovery has been hurt by processing delays for international students at its Australian college. But she said the company still offer a “share-gain story” because of its relatively low costs and flexible opportunities that can specific target older adults in the workforce. The company’s Australian and New Zealand business should recover by the second half of this year, Balsky said. In the U.S., she said Strayer is finally “hitting its stride” coming out of the pandemic. Further reopening in Australia, improved marketing and increased prices can all help sales this year, she added. And Balsky added that margins should also beat expectations if sales growth comes in better than expected. Some investors have raised concerns over risks from U.S. student loan forgiveness ending given the potential for an increase in the volume of loans defaulted on, but she characterized those worries as “overdone.” The likelihood of the company losing its access to federal aid funding because of high default rates is low given the on-ramp for loans that should allow more people to stay on track for payments, she said. — CNBC’s Michael Bloom contributed to this report
