Can Apollo Education Group Outgrow ITT Educational and Strayer?

Apollo Education Group (NASDAQ: APOL  ) will release its quarterly report on Tuesday, and investors have been pleased by the positive turn that the for-profit education company's stock has taken in recent months. Yet even with big gains for its shareholders, Apollo still faces tough competition from ITT Educational Services (NYSE: ESI  ) and Strayer Education (NASDAQ: STRA  ) , along with plenty of other rivals in the for-profit industry.

Apollo and just about all of its industry peers have faced tough times in recent years as criticism about the mixed results that students of for-profit educational institutions have had in getting jobs and repaying student loan debt after finishing school has led to regulatory scrutiny. As a result, Apollo has had to regroup and try to emphasize its competitive advantages over ITT, Strayer, and its other rivals. Can the company behind the University of Phoenix keep its leadership role and give investors positive returns in the future? Let's take an early look at what's been happening with Apollo Education Group over the past quarter and what we're likely to see in its report.

Stats on Apollo Education Group

Analyst EPS Estimate

$0.90

Change From Year-Ago EPS

(26%)

Revenue Estimate

$860.58 million

Change From Year-Ago Revenue

(18.4%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Apollo earnings keep up their positive trend?
Analysts have gotten more optimistic about Apollo earnings in recent months, boosting their November-quarter estimates by $0.04 per share and their full-year fiscal 2014 and 2015 projections by a much more substantial 17% and 28%, respectively. The stock has also soared, gaining almost 30% since early October.

Apollo had nothing but good news in most investors' eyes in its August-quarter report, with the stock climbing more than 25% in the two days after the company announced its results. A 15% drop in revenue looked scary, but it was less extreme a decline than investors had expected to see. Moreover, Apollo delivered huge outperformance on the adjusted earnings front, more than doubling projections.

Yet, more troubling numbers hid behind the headlines. Apollo's overall enrollment fell more than 18% during the quarter, with new student enrollment plunging more than 22%. Those enrollment figures are consistent with declines at rivals DeVry (NYSE: DV  ) and Bridgepoint Education (NYSE: BPI  ) over the past year, although Bridgepoint only started seeing new-enrollment declines take hold in 2013.

In response, Apollo anticipates continuing its restructuring efforts in an attempt to cut costs. The for-profit educator expects total reductions in fixed operating costs to total $650 million, with about $300 million coming in fiscal 2014. Already, the roughly $350 million in reductions played a key role in Apollo's projections for $375 million to $450 million in operating income in fiscal 2014, and that guidance gives Apollo a fighting chance to stop the downward trend in its operating income and begin a more lasting recovery.

Nevertheless, Apollo, DeVry, Strayer, and all of their peers face ongoing scrutiny from those who don't trust the for-profit education business model. Between Senate investigations of alleged unethical or illegal activity and new statistics about the failure rates of online-based education generally, Apollo will continue to face pressure to rebuild its reputation as an enabler of career success.

In the Apollo earnings report, watch to make sure that the company is following through on its predictions that its business would bottom out and start to grow again in the current fiscal year. Without signs of progress, Apollo could give back much of its gains from recent months.

Get a great stock on your side
Apollo has potential to rebound, but even so, there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Click here to add Apollo Education Group to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2784172, ~/Articles/ArticleHandler.aspx, 4/19/2014 5:24:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement