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|Stock Price At Underperform Recommendation:||$47.38|
Apollo Group profile
|Market Cap||$6.2 billion|
Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.
This company has built a revolutionary business based on the belief of founder John Sperling that lifelong employment with a single employer would be replaced by lifelong learning and employment with a variety of employers. The need for education options in an economy that demands highly skilled workers is proving the thesis.
Apollo Group is one of the world's largest for-profit education companies, with 350,000 degreed students enrolled in its core school, the University of Phoenix. The company offers classes online and through physical learning centers in nearly 40 states as well as various international locations. Programs range from associate to doctorate degrees in areas such as business, education, health care, technology, and social and behavioral sciences.
Apollo was trading at $90 a share in early 2009, we added it to our portfolio at slightly over $40 a share. For-profit education came under increased scrutiny in the last two years as problems of student defaults and aggressive recruiting gave the industry a black eye. We believe that Apollo has gotten out in front of the problem in part by instituting a screening process that weeds out students who are unlikely to complete the program. Although there are clearly challenges that remain, we feel that Apollo provides an important function in the 21st century economy that requires individuals to continue to learn throughout their careers.
Apollo is a free cash flow machine, generating close to $900M in 2009 & 2010. Return on equity is double the industry average at 30.7. Current analyst estimates put it at a PEG ratio of 1.84, which is at the high end of where we like to be, however we feel that organic growth internationally, acquisitions of specialty education firms and a reacceleration of their core business resulting from management’s decisive response to quality concerns, should allow Apollo to beat estimates handily.