We maintained a Neutral recommendation on
American Public Education, Inc.
(
APEI
) following appraisal of fourth quarter and full year 2011
results.
American Public Education recorded earnings of 71 cents per
share in the fourth quarter, beating the Zacks Consensus Estimate
by 11 cents. Earnings were also above the prior-year figure of 52
cents due to robust top-line growth and a low tax rate. Total
revenue of $75.7 million surged 34% from the prior-year quarter,
and also came in ahead of the Zacks Consensus Estimate of $73
million. The top-line growth was driven by robust student
enrollments, particularly from civilian students.
American Public Education is one of the leading online providers
of higher education focused primarily on serving the military and
public service communities. The company's students can finance
their education through tuition assistance programs of the US Armed
Forces (DoD tuition assistance programs), education benefits
administered by the Department of Veterans Affairs, and federal
student financial programs referred to as the Title IV
programs.
More than 50% of the company's students serve in the US
military. The company's courses have been specifically designed to
suite online studies and the faculty has also been specially
trained for online teaching. Online programs are well-suited for
the unpredictable and demanding work schedules of military
personnel who are required to travel and relocate frequently and
have limited financial resources.
American Public Education's tuition costs are not only below
most private school tuition costs but also 20% below the average
in-state tuition costs for public universities. The company's
undergraduate courses cost $250 per semester credit hour, which has
remained unchanged since 2000. Graduate courses cost $325 per
semester hour. A full undergraduate degree would cost $30,250
whereas a graduate degree would cost around $12000 for military
students. The affordability of the company's courses and programs
will benefit it in the long run due to increasing price sensitivity
among students in this challenging economic environment.
Besides, American Public Education is gradually shifting its
focus from military personnel to public service segments of the
civilian market. In 2011, the company witnessed significant growth
in enrollment by civilian students partly due to the attractiveness
of the Title IV funds as well as the affordability of the courses
offered. Though shift in student mix to civilians would result in
higher selling and promotional costs and bad debts, it bodes well
for the company's long-term growth as these students generally take
more classes than military students and show higher retention
rates.
As a caveat, the company's DoD tuition assistance programs and
the Title IV federal aid programs are subject to stringent
regulations by the Department of Education and accrediting agencies
recognized by the Secretary of Education. The regulations and
policies of the Department of Education, state education agencies,
and the accrediting agencies change frequently.
The educational institutions are also under the scanner due to
the rise in abuse of funds, mostly by civilian students who use the
balance fund (fund is usually more than American Public Education's
tuition costs) to meet living expenses. The company is taking steps
to reduce student abuse of the Title IV Funds and thereby improve
student outcomes. However, such efforts increase costs and hurt
margins.
At the fourth quarter and 2011 conference call, management
announced that active duty military students represent an
increasingly smaller portion of the overall population. Management
believes that military enrollment will continue to be volatile and
possibly decline going forward due to possible reductions in US
army, marine and sales force personnel. Defense budget cuts are
high on priority, which will also affect student enrollments and
funding. We therefore prefer to remain on the sidelines
without taking any new positions in the stock.
AMER PUB EDUCAT (
APEI
): Free Stock Analysis Report
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