Can Apollo Education Group Outgrow ITT Educational and Strayer?

The University of Phoenix's parent company has seen its stock soar lately, but can its rebound outpace ITT Educational Services and Strayer Education? Learn more about the industry here.

Jan 6, 2014 at 11:04AM

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


Change From Year-Ago EPS


Revenue Estimate

$860.58 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


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.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Bridgepoint Education. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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