Apollo Group Retained at Neutral - Analyst Blog

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On Nov 5, we maintained a Neutral recommendation on Apollo Group Inc. ( APOL ) 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 and earnings.

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. ( ESI ), New Oriental Education & Technology Group Inc. ( EDU )and Xueda Education Group ( XUE ). All these companies carry a Zacks Rank #1 (Strong Buy).



APOLLO GROUP (APOL): Free Stock Analysis Report

NEW ORIENTAL ED (EDU): Free Stock Analysis Report

ITT EDUCATIONAL (ESI): 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: APOL , EDU , ESI , XUE

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