On Feb 14, we maintained a Neutral recommendation on leading
private education service provider,
Apollo Group Inc.
), following appraisal of its first quarter fiscal 2013 results.
The company also carries a Zacks Rank #3 (Hold).
Why the Neutral Recommendation?
Apollo Group's first quarter fiscal 2013 earnings as well as
revenues beat the Zacks Consensus Estimates on the back of
better-than-expected cost savings and lower-than-expected
enrollment decline at the University of Phoenix. However,
earnings dropped 3.2% year over year to $1.22 due lower revenues.
Apollo Group's net revenue declined 10% in the quarter.
Total enrollments at Apollo's flagship university, University
of Phoenix declined 14.3% in the quarter. Apollo Group has been
witnessing persistent decline in enrollment due to the weak
macroeconomic environment and subsequent decline in demand for
education (due to the hesitancy over taking a loan) in the U.S.
Encouragingly, however, new enrollment declined 15.1% in the
quarter, which bettered the company's expectation of a decline of
However, management slightly reduced its previously provided
expectations for fiscal 2013 revenue and profits due to planned
increases in student discounts and marketing costs; and soft
enrollment trends in December.
Despite the earnings and revenue beat in the first quarter,
estimates mostly moved downwards due to the cut in the financial
guidance. The Zacks Consensus Estimate for 2013 has gone down by
almost 4% to $2.66 while that for 2014 has reduced by 12.8% to
$2.53 over the last 60 days.
Overall, we like Apollo Group's dominant market position as
well as its efforts to address the challenges and improve
business over the long term. Apollo's initiatives include
investments in adaptive learning, curriculum development, new
learning systems and student service platforms; and initiatives
to connect education to careers. Apollo also has plans for
significant layoffs and campus closings in fiscal 2013 to
turnaround its business and become more competitive.
Though new enrollments have shown slight improvement, we
believe new student starts will take several more quarters to
show a sustained recovery and are expected to become positive
only by the end of fiscal 2013. Thus the volatile enrollment
trends and possibility of regulatory changes keep us on the
Other Stocks to Consider
Some other education companies worth a look are
American Public Education, Inc.
) - Zacks Rank #1 (Strong Buy),
) - Zacks Rank #2 (Buy) and
Grand Canyon Education, Inc.
) - Zacks Rank #2 (Buy).
AMER PUB EDUCAT (APEI): Free Stock Analysis
APOLLO GROUP (APOL): Free Stock Analysis
DEVRY INC (DV): Free Stock Analysis Report
GRAND CANYON ED (LOPE): Free Stock Analysis
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