We recently upgraded our recommendation on
American Public Education, Inc.
(
APEI
) following solid top and bottom-line results in the second quarter
that surpassed both management as well as the Zacks Consensus
Estimates.
American Public's second quarter 2012 earnings of 51 cents per
share beat the Zacks Consensus Estimate of 45 cents by 13% and the
prior-year quarter earnings by 4.1%. Earnings were also
significantly above the guidance range of 41 cents - 47 cents
driven by better-than-expected top-line and enrollment growth in
the quarter.
Total revenue increased 23% year on year to $74.6 million and
was slightly above management's expectation of a growth in the
range of 14% to 22%. Revenues also edged past the Zacks Consensus
Estimate of $72.0 million. The top-line growth was driven by brisk
student enrollments in the quarter, particularly from civilian,
military, and veteran students.
Total and new enrollment growth was also above management
expectations. American Public has been consistently
delivering positive growth in revenues, earnings and enrollments.
This is impressive, considering that most peers have contrarily
been witnessing consistent enrollment declines.
American Public is one of the leading online providers of higher
education, focused primarily on serving the military and public
service communities. American Public's tuition costs are not only
lower than tuition fees for most private schools but also 20% below
the average in-state tuition cost for public universities. 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.
Moreover, American Public is gradually shifting focus from
military personnel to public service segments of the civilian
market. In 2011 as well as in the first half of 2012, the company
witnessed significant growth in enrollment by civilian students
partly due to the attractiveness of the Title IV funds and also
because of 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.
We believe that the company's affordable tuition costs and its
shifting of student focus to the civilian market are boosting
enrollment growth.
The company is also looking for international opportunities
besides entering into corporate relationships and community college
partnerships to give it the necessary diversification from volatile
enrollment trends of active duty military students. American Public
Education has established relationships with companies like
Wal-Mart Stores Inc
. (
WMT
),
Dollar General Corporation
(
DG
),
ManTech International Corporation
(
MANT
) and others as well as non-profit associations including National
Environmental Health Association and Hispanic Information and
Telecommunications Network.
The educational institution is 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. American Public is taking steps to
reduce student abuse of the Title IV Funds and thereby improve
student outcomes. The company's fraud prevention initiatives have
been effective in reducing enrollment of students who abuse funds
since the beginning of 2012. Though these steps might result in
lower enrollments in the near term, it will result in quality
academic outcomes in the longer term and build goodwill for the
company.
The company is also developing its information technology
infrastructure to support a larger more diverse student population.
Further, it is making investments to automate Title IV processes
and has launched an ePress initiative which will help reduce costs
and thereby increase affordability. The company is also focusing on
marketing and promotional activities to increase awareness of its
brand.
AMER PUB EDUCAT (APEI): Free Stock Analysis
Report
DOLLAR GENERAL (DG): Free Stock Analysis Report
MANTECH INTL -A (MANT): Free Stock Analysis
Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
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