Stride, Inc. (LRN) stock intrinsic value fair value estimate & owner earnings analysis

Stride (formerly K12 Inc.) runs online public schools that families choose instead of a traditional school building. It is paid the way any public school is paid: per-pupil funding from state and local governments, under contracts with the virtual and blended schools it manages in 31 states and the District of Columbia. There are two halves. General Education (about $1.42 billion of fiscal 2026 revenue) is the full-time online K-12 school. Career Learning (about $1.10 billion) is career-track coursework for middle and high schoolers inside those same schools, plus adult certification and bootcamp programs (MedCerts, Galvanize, Tech Elevator). Fiscal 2026 (year to June 2026) revenue was $2.52 billion, up 4.7%. Total enrollment rose 4.2% to 243,900. Career Learning revenue grew 15% on 13.9% more enrollments, while General Education revenue fell 2.1% on 2.5% fewer enrollments. Operating income rose 25% to $451 million, helped by lower overhead and a $14.3 million gain from ending the San Francisco office lease. How we measure what the business earns. We start from operating cash flow, strip out swings in working capital, and charge stock compensation as a real cost. We then charge three more costs this year that our earlier work did not. (1) Student computers. Stride supplies laptops to students and pays for most of them through three-year equipment leases (Banc of America Leasing and CSI Leasing). Those purchases never show up as capital spending in the cash-flow statement, yet they are an unavoidable, recurring cost of serving students: $69 million in fiscal 2025 and $82.5 million in fiscal 2026. We now count them alongside curriculum and software development. (2) Bad debts. Provisions for receivables that will not be collected ($15 to $23 million a year) are treated as a real cost. (3) Growth needs working capital. Stride carries receivables of about a quarter of a year's revenue, so each extra dollar of revenue ties up roughly 25 cents. Every case charges that cost against the growth it credits. On this basis, owner earnings were $5.68 a share in fiscal 2024, $7.20 in fiscal 2025 and $7.96 in fiscal 2026, against the $6.92, $8.77 and $9.99 we showed before. That is the main reason our estimate is lower than last time. Before paying its lenders, the business produced $5.85, $7.39 and $8.18 a share over those three years. We value from the middle year, $7.39, as the normal level. We use fiscal 2024 to 2026 because that is the business as it now exists, with Career Learning at scale. The pandemic surge of 2021 and the smaller company before it describe a different business. We did not use fiscal 2026 alone as the level for three reasons: it includes a one-time deferred-tax benefit from the July 2025 federal tax law, receivables grew 19% against 4.7% revenue growth, and operating cash flow was flat even though profit rose. Debt and cash, handled differently than before. Previously we valued earnings after interest and mentioned the $420 million of convertible notes only as a refinancing risk. We never subtracted the debt and never gave credit for the cash. Now we value the business before its lenders and then settle up. Stride owes $420 million of 1.125% convertible notes due September 1, 2027 (valued at about $401 million because the coupon is far below market until then) and $117 million of computer leases. Against that it holds $958 million of cash and marketable securities. Of that, we treat about $300 million as needed to run the business through its seasonal collection cycle. On net, the company has about $140 million more cash than debt, worth about $2.95 a share in every case. The notes are payable in cash for principal, with any conversion value above $52.88 a share paid at Stride's option and partly offset by capped calls up to $86.17. That conversion dilution is already in our share count. The interest bill of about $10 million a year is trivial next to the cash the business produces in any of our cases. Growth path. Owner earnings grew 10.6% a share in fiscal 2026. The base case assumes 2.5% a year for five years from the $7.39 level, well below that trailing rate and below Stride's roughly 11% a year revenue record since 2016. Year one therefore produces less cash than fiscal 2026 did. The growth we credit is the continuation of an enrollment and Career Learning mechanism Stride has run for years out of its own cash. We did not credit further margin gains, new states or new programs, or the $500 million buyback authorization. Base case, about $118 a share. Career Learning keeps adding enrollments and roughly offsets General Education's slow decline. Earnings grow 2.5% a year for five years, taper to zero growth by year ten, then hold flat through year thirty. Thirty years is about the span Stride has already operated under renewing state and district contracts. The business is worth about $5.45 billion. Add about $140 million of net cash, and the equity is worth about $5.59 billion, or $118.01 a share. Bear case, about $61 a share. Three disclosed problems persist. General Education keeps losing students. The fall 2025 rollout of new systems, which Stride's own filing says caused higher withdrawals and fewer applicants becoming students, keeps hurting enrollment. Adult certification revenue keeps shrinking after falling 19% and then 30% in the two prior years. Earnings fall back to the fiscal 2024 level ($5.85) in year one and $5.60 in year two, stay flat to year ten, then fade to nothing over the following fifteen years as school contracts and state authorizations come up for renewal. The business is worth about $2.74 billion. With the net cash, the equity is worth about $2.88 billion, or $60.75 a share. Even here the 2027 notes are covered by cash on hand. Bull case, about $177 a share. Fiscal 2026's level holds (about $7.80 once the one-time tax benefit is removed). Career Learning keeps growing near its recent pace, so earnings grow 7% a year for five years and 4% a year for the next five, then hold flat through year forty. The business is worth about $8.22 billion. With the net cash, the equity is worth about $8.36 billion, or $176.60 a share. Margin-of-safety price. The margin-of-safety price is about $75. That is roughly a 36% discount to the base case, wider than for a steady business, because Stride's revenue depends on state funding decisions, charter renewals and enrollment that has just shown it can stumble. It is also only about 23% above the bear case. What would make this wrong. If General Education's 2.5% enrollment decline widens in fall 2026, or last year's platform problems cost more students than they already have, the base case is too high. If receivables keep growing much faster than revenue, cash earnings are weaker than reported profit suggests; the fiscal 2026 increase was not explained in the annual report. On the upside, if Career Learning keeps growing 14% a year and General Education stabilizes, the bull case is the better guide.