Is Apollo Education's Fortune Turning Around? - Analyst Blog


On Jul 15, we issued an updated research report on Apollo Education Group, Inc. ( APOL ).

The company reported strong third-quarter fiscal 2014 results on Jun 25, beating the Zacks Consensus Estimate for both earnings and revenues.

However, earnings of 61 cents per share declined 27.6% year over year as a relatively better top-line performance was offset by weaker margins. Revenues declined 15.5% due to 15.9% decrease in total enrollment at Apollo's flagship institution, University of Phoenix, which accounts for 90% of its revenues.

Apollo's enrollments have been sluggish for many quarters due to regulatory challenges, changes and stiff competition in the higher education industry. Enrollment trends throughout the industry have been affected by changing regulatory requirements, sluggish demand due to students' aversion to debt, robust competition and a volatile economy.

Encouragingly, however, starts improved sequentially in all the quarters reported so far in 2014, indicating that the company's branding, program diversification and student retention initiatives are gradually yielding results.

The company is consistently enhancing and expanding its services and investing in academic quality to improve student experience and outcomes. Apollo's initiatives include investments in adaptive learning, new degree and certificate-based programs, new modernized and significantly upgraded online classroom, and new learning and service platform. In addition to these growth enhancing investments, innovation and recent price cuts should improve student value proposition and retention rates.

Moreover, Apollo's accelerated efforts to right-size its business through significant layoffs and campus closings offer competitive advantage. In fact, since 2012, Apollo Education has lowered its cost base - mostly fixed expenses - by roughly $900 million, making the company leaner, efficient and more competitive.

Though we believe these turnaround efforts should eventually improve enrollment trends and boost margins, enrollments are unlikely to return to positive growth any time in the near future.

Other Stocks to Consider

Apollo Education carries a Zacks Rank #3 (Hold). Better-ranked education stocks worth considering include TAL Education Group ( XRS ), DeVry Education Group Inc. ( DV ), and Capella Education Co. ( CPLA ). While TAL Education and DeVry sport a Zacks Rank #1 (Strong Buy), Capella has a Zacks Rank #2 (Buy)

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APOLLO GROUP (APOL): Free Stock Analysis Report

DEVRY EDUCATION (DV): Free Stock Analysis Report

CAPELLA EDUCATN (CPLA): Free Stock Analysis Report

TAL EDUCATN-ADR (XRS): 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 , DV , CPLA , XRS

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