On Nov 5, we maintained a Neutral recommendation on
Apollo Group Inc.
) despite surprisingly strong fourth-quarter results announced
last month. We await improvement in enrollment trends before
turning more positive on the stock.
Why the Neutral Recommendation?
Apollo reported strong fourth-quarter fiscal 2013 results on
Oct 22, beating the Zacks Consensus Estimate for both revenues
Adjusted earnings (excluding special items) of 55 cents per
share in the fourth quarter of fiscal 2013 were significantly
above the Zacks Consensus Estimate of 25 cents by 120%. In fact,
Apollo Group's earnings grew almost 6% year over year - the first
quarterly year-over-year increase for this for-profit education
company in more than two years. Massive cost cutting and
better-than-expected revenues helped the company exceed profit
expectations in the fourth quarter.
Net revenue of $845 million also beat the Zacks Consensus
Estimate by 2.7%. Revenues, however, declined 15.2% from the
prior-year quarter due to a decline in enrollments at the
University of Phoenix.
Moreover, the fiscal 2014 revenue outlook fell short of Zacks'
expectations. Total enrollments are expected to decline from 2013
levels to 230,000 students in fiscal 2014. However, management
expects enrollment trends to improve throughout the year. In
fact, in the first quarter of fiscal 2014, new enrollments are
expected to decline at similar or lower rates than the fourth
quarter of 2013.
Overall, we are positive about Apollo Group's dominant market
position and focus on offering relevant career oriented
educational programs. Its accelerated efforts to right-size its
business through significant layoffs and campus closings will
make it more competitive in the long term. Apollo's investments
in adaptive learning, curriculum development, new learning
systems and student service platforms should improve student
value proposition and retention rates.
Though encouraging, these initiatives have yet to result in
sustainable enrollment growth. The lack of visibility on
enrollment improvement and the possibility of regulatory changes
keep us on the sidelines.
Apollo carries a Zacks Rank #3 (Hold). Better-placed stocks in
the education sector include
ITT Educational Services Inc.
New Oriental Education & Technology Group
Xueda Education Group
). All these companies carry a Zacks Rank #1 (Strong Buy).
APOLLO GROUP (APOL): Free Stock Analysis
NEW ORIENTAL ED (EDU): Free Stock Analysis
ITT EDUCATIONAL (ESI): Free Stock Analysis
XUEDA EDUC-ADR (XUE): Free Stock Analysis
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