Strategic Education, Inc. (STRA) stock intrinsic value fair value estimate & owner earnings analysis

Strategic Education runs three businesses. U.S. Higher Education (Strayer University and Capella University, about $868 million of 2025 revenue) teaches working adults, mostly online, from bachelor's through doctoral degrees and depends heavily on federal student aid. Australia/New Zealand (Torrens University, Think Education and Media Design School, about $252 million) was bought in November 2020 and serves both domestic and international students. Education Technology Services (about $148 million, up 41% in 2025) combines Workforce Edge, which administers employer tuition-benefit programs (81 corporate agreements covering roughly 4 million employees at mid-2026), and Sophia Learning, low-cost subscription general-education courses. How we measured earnings. We use owner earnings: operating cash flow with short-term working-capital swings removed, stock compensation charged as a real cost, and only the capital spending needed to keep the business running deducted. Two judgements matter. First, stock compensation of $20-26 million a year is now charged in full; our previous estimate did not deduct it, which is the main reason the values below are lower than before. Second, a cash outflow of about $6 million a year labelled "other liabilities" (largely payments on vacated leases and similar obligations) shows up every single year from 2016 to 2025, so we treat it as an ongoing cost, not a timing swing. The large amortization from the 2018 Capella merger was a non-cash charge and is added back; it ran off completely by 2024. On this basis, owner earnings were $115.6 million in 2021, $47.9 million in 2022 (the post-pandemic enrollment slump), $83.1 million in 2023, $108.2 million in 2024 and $136.8 million in 2025 ($5.85 per share). Because this business owes essentially nothing, we value it before any interest cost (cash interest was $0.5 million in 2025, and higher only while a revolving loan used for the Australian purchase was outstanding in 2021-2023) and then add its spare cash. The starting level is the median of 2021-2025, the five full years of the business in its current three-segment form: about $111 million a year. That window deliberately includes the 2022 slump, because enrollment in adult education swings with the job market and with federal rules, and it includes the strong recent years. First-half 2026 results were roughly level with the first half of 2025, so the recent run-rate is near $137-139 million; we do not use that as the level, but it tells us the business is not currently deteriorating. Base case ($103.73 per share). Owner earnings grew 26% in 2025; we assume only 2% a year from the $111 million base for ten years, reflecting the demonstrated ability to raise revenue per student while U.S. enrollment drifts slightly lower (down 1.4% in 2025 and 0.5% in the second quarter of 2026). We give no credit for further growth in Workforce Edge or Sophia, because that growth depends on winning more employers and subscribers, which has not yet happened. After year ten we hold earnings flat in dollars indefinitely: Strayer has operated since 1892 and the accredited universities, their employer relationships and their healthcare programs (now 52% of U.S. enrollment) are what keep earning power in place, but we assume no further growth. The business is worth about $2.17 billion, it owes nothing, and it holds roughly $84 million of cash beyond an estimated $50 million needed to operate (of $134 million in cash and investments at June 30, 2026), for about $2.25 billion of equity, or $103.73 per share. Bear case ($49.16 per share). The named risks are federal rule changes already signed into law. The One Big Beautiful Bill Act of July 4, 2025 ends Grad PLUS loans for new graduate borrowers from July 2026 and caps graduate borrowing at $20,500 a year and $100,000 overall, which matters for Capella's master's and doctoral students. It also creates a new earnings test, effective July 2026, under which programs whose graduates earn too little lose federal loan eligibility. In Australia, enrollment fell 5.2% in the second quarter of 2026 as international student demand weakened. The bear case assumes owner earnings fall from $95 million to about $60 million over three to four years, roughly the 2022 trough, recover only to $75 million by year ten, and then shrink 3% a year. The business is worth about $985 million, it owes nothing, and with the spare cash equity is about $1.07 billion, or $49.16 per share. Bull case ($160.56 per share). Earnings hold at the 2025 level the business has already reached ($137 million), then grow 4% a year for five years and 3% for the next five as tuition pricing continues and employer-sponsored enrollment keeps rising (34.7% of U.S. enrollment in the second quarter of 2026, up from 31.8% a year earlier). After year ten, pricing power sustains 1% growth. The business is worth about $3.41 billion, it owes nothing, and equity is about $3.49 billion, or $160.56 per share. Debt. The company repaid its last term borrowings in 2024 and had nothing drawn on its $250 million revolving credit facility at the end of 2025 or at June 30, 2026. Leases are ordinary operating leases whose cost is already inside owner earnings, so they are not subtracted again. There are no maturities or covenants that affect any case. Our earlier estimate mentioned the cash only in passing; it is now counted explicitly, adding about $3.86 per share to each case. What would make this wrong: a wider-than-expected loss of federal loan eligibility at Capella or Strayer under the new earnings test, a sharp U.S. enrollment decline like 2022, or continued weakness in Australian international enrollment would pull value toward the bear case; continued fast growth in Workforce Edge and Sophia, which we have not credited, would push it higher. Share repurchases ($139 million in 2025 and $73 million in the first half of 2026) have cut the diluted share count from about 24.1 million in 2024 to about 21.7 million; values are per current share.