The Cult of Silberman

The gang at Morningstar named Robert Silberman of Strayer Education (STRA-NASDAQ) their 2007 CEO of the year, a long overdue acknowledgement of Silberman’s managerial prowess. Indeed, the well regarded CEO who is one of the more talented managers I have come across in countless one-one one meetings with management teams.

Still, we find the timing a bit curious given the stock’s recent outperformance.  Great company, but good stock here?

“Strayer is one of the top-performing companies in the for-profit education industry, and much of that is due to CEO Robert S. Silberman’s stewardship,” said Paul Larson, equities strategist and editor of Morningstar StockInvestor.

“Silberman has encouraged a corporate culture dedicated to making quality education available to everyone, and in the process has achieved remarkable results.” PRN Newswire

Silberman’s acumen and ability are well known on Wall Street. So good, in fact, that he has created a bit of an investor cult around him. It began to take shape in 2003 when Strayer priced a follow on stock offering led by Credit Suisse. Silberman came in to clean up a mess at Strayer, implementing changes after he was brought in as CEO.

Several SellSide analysts lionized him in the wake of his ascension, providing Strayer with a rich multiple that eventually turned the stock into an underperformer in 2004-’06 as the rich valuation was worked off.

Silberman and Strayer are keepers, but if Morningstar thinks they are telling the BuySide something new here they are mistaken. The education stocks were generally strong performers last year, and could provide a nice hiding place given their traditional counter cyclical characteristics.

Still, the award could have been handed out earlier, and, given it comes with a tacit endorsement to buy the stock, might have been more appropriate after a period of stock underperformance. Several years of multiple compression had to be resolved one way or another, and while the stock could end up as a big winner in 2008, they are a little late with this call.

The wide moat, Morningstar’s phrase for barriers to entry, is reflected in the stock. And while the stock is not as rich as it was three or four years ago, its valuation premium over the market and its peers are largely due to one man, a fact investors should recognize before they chase the stock based on Morningstar’s recommendation.

Although we generally have to agree. Well done, Robert Silberman.

CEO of fastest-growing education company is passionate about quality education for all
PRN Newswire
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