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American Public Education Inc. Sees Gloomy Days Ahead

By Brian Stoffel - May 12, 2015 at 10:33AM

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The for-profit educator provides more uncertainty than Wall Street likes.

Photo: American Public Education

Over the past three months, a number of previous world-beaters in the for-profit education industry have announced that they are closing some or all of their campuses. Such is the state for a group of companies that have profited by taking advantage of vulnerable demographics and getting easy money from the government.

American Public Education (APEI 1.56%), however, has largely been able to avoid that fate. That's because the school has largely focused on providing higher education options to a very specific demographic: those who are serving -- or have recently served -- in the armed forces.

Recently, however, American Public has had trouble satisfying investors as well. The company announced its quarterly results last night, with earnings beating expectations, but revenue slightly missing. What does it all mean for investors?

It's not looking pretty
While some like to focus on balance sheet figures, when it comes to for-profit educators, there's nothing more important than enrollment numbers -- particularly new-student enrollment.

For the first quarter of 2015, American Public saw overall enrollment drop 6% and new-student enrollment drop 16% -- not including its Hondros School of Nursing. While that might sound bad, it was pretty much in line with what management said would happen during last quarter's conference call.

That might provide some solace to investors, but the company's forecast for next semester could prove to be a mortal wound: Overall enrollments are expected to drop between 7% and 10%, while new-student enrollments are expected to drop between 19% and 23%.

Speaking on the company's conference call, CFO Richard Sunderland said, "We believe these declines are result of challenges in the military market, accompanied by increased competition for students, as well as by our more-targeted approach to advertising that is intended to attract students with greater college readiness." In the conference call, executives talked, for instance, about military caps on how many courses people can register for and increased paperwork for students.

In essence, American Public is focusing on high-quality students who will graduate, but competition for these students is fierce, especially from traditional schools.

The takeaway for investors
All things considered, American Public is taking the kind of pro-social, student-friendly moves you'd hope any school would make. The drawback is that, as a publicly traded company, those moves are coming at the expense of shareholders.

While a bump in tuition -- the first since 2000, which is kind of incredible -- is nice to hear, it might be too little to pacify Wall Street. (Effective July 1, American Public University System undergraduate-level course tuition will increase by $20 per credit hour to $270 per credit hour and graduate-level course tuition will increase by $25 per credit hour to $350 per credit hour.)

There's no doubt that focusing intently on getting the highest quality students, and making sure that they're successful, is a great long-term approach, but it's impossible to tell how many students that means the school will serve five to 10 years from now, and how much they'll be willing to pay for their degrees from American Public. If there's anything Wall Street hates, it's uncertainty, and American Public is serving it up in droves right now.

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