Apollo Education Soars on Raised Outlook - Analyst Blog


Apollo Education Group, Inc. 's ( APOL ) share price shot up 14.20% and reached a new 52 week high of $31.94 on Jan 8, 2014, a day after it announced better than expected first quarter fiscal 2014 earnings and raised its outlook for fiscal 2014.

Share Price Drivers

Better-than-expected First Quarter Earnings: Despite declining 14.8% year over year, Apollo's earnings of $1.04 outpaced the Zacks Consensus Estimate by 15.6%. We believe that significantly lower cost and taxes in the quarter helped the company beat earnings expectations.

In fiscal 2013, Apollo adopted a plan to right size its business and become more competitive, which included layoffs and campus closings. This cost control strategy increased savings due to higher level of efficiency and lowered costs associated with enrollment. The company witnessed 100 basis points improvement in operating margin to 23.6% in the quarter.

Stronger Outlook for 2014: Notwithstanding a weak top line, share prices of this Zacks Rank #1 (Strong Buy) company increased due to a significant improvement in 2014 outlook. Apollo Education increased its top line guidance for fiscal 2014 to incorporate revenues from the recent acquisition of Open Colleges (an Australia based college acquired in Dec 2013). The company raised its fiscal 2014 net revenue guidance to a range of $3.0 billion to $3.10 billion from prior expectation of $2.95 billion-$3.05 billion.

The company also raised the bottom end of its operating income guidance and  increased its savings target by $25 million for fiscal 2014. Adjusted operating income is expected in the range of $400 million to $450 million compared with prior expectations of $375 million-$450 million. All cost items are expected to decline in 2014 from 2013.

Acquisition of Open Colleges: Apollo was able to improve on its 2014 outlook, following the acquisition of Open Colleges in Dec 2013 for $98.5 million in cash. Apollo Education agreed to acquire 70% of the outstanding stock of Open Colleges Australia Pty Ltd, known as Open Colleges. Open Colleges is one of Australia's oldest and largest providers of distance learning and the acquisition is in line with APOL's long-term strategy of global expansion. The acquisition is expected to be complete by the second quarter of fiscal 2014. The agreement allows Apollo Global to purchase the rest of the stock in the future.

Though Apollo Group has a dominant market position and focuses on offering relevant career oriented educational programs, the company has been witnessing weak enrollment in the U.S., leading to a decline in revenues. The acquisition will thus allow Apollo Global to access the growing education market in Australia and focus its resources internationally, where better results are expected.

Investors interested in the education sector may also consider stocks like American Public Education, Inc. ( APEI ), TAL Education Group ( XRS ) and Xueda Education Group ( XUE ). All the three stocks carry a Zacks Rank #2 (Buy).

AMER PUB EDUCAT (APEI): Free Stock Analysis Report

APOLLO GROUP (APOL): Free Stock Analysis Report

TAL EDUCATN-ADR (XRS): Free Stock Analysis Report

XUEDA EDUC-ADR (XUE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: APEI , APOL , XRS , XUE



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