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