We recently reverted back to a Neutral recommendation on
American Public Education, Inc.
) from Outperform due to weak new student starts in the fourth
quarter of 2012. American Public Education carries a Zacks Rank
Why the Downgrade?
Even though, American Public beat the Zacks Consensus Estimate
for revenues and earnings in the fourth quarter of 2012, its new
student starts were weak and operating margins declined in the
quarter. American Public, an online provider of higher education,
released its fourth quarter of 2012 earnings results on Feb 28.
New student enrollments declined 8% in the quarter, higher than
management's expectations of a 3% to 7% decline. Management
believes that the company's fraud prevention initiatives are
reducing enrollment of students who abuse funds, which explains
the decline in new student starts for the quarter.
Moreover, the company also provided a bleak outlook for
student starts in the upcoming quarter. We believe the declining
trend of new student starts could eventually impact total
enrollment in future quarters.
AMER PUB EDUCAT (APEI): Free Stock Analysis
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Operating margins also declined in the quarter by around 130
basis points to 25% due to the company's increased marketing
efforts, which resulted in higher selling and promotional
A tough regulatory environment also remains a persistent
Despite the fourth-quarter beat, estimates have mostly moved
downwards for 2013 and 2014. The Zacks Consensus Estimate
for 2013 moved down by 1.9% to $2.58 and 7.0% to $2.80 for 2014
over the last 60 days.
Stocks That Warrant a Look
Stocks such as
Giant Interactive Group, Inc.
) are currently performing well and are worth considering.
Shutterfly and Zillow carry a Zacks Rank #1 (Strong Buy), whereas
Giant Interactive holds a Zacks Rank #2 (Buy).