American Public Education Beats - Analyst Blog

American Public Education Inc. (APEI), an online provider of higher education to the military and public service communities, recently delivered third-quarter 2010 results that topped the Zacks estimates. The quarterly earnings of 30 cents a share beat the Zacks Consensus Estimate by a penny, and rose 11% from 27 cents earned in the prior-year quarter. The Zacks Consensus Estimate was stable prior to the earnings announcement.

Management now expects fourth-quarter 2010 earnings between 45 cents and 47 cents a share, ahead of the current Zacks Consensus Estimate of 44 cents, supported by 15 analysts covering the stock.

Total revenue of $48.3 million came in ahead of the Zacks Consensus Estimate of $47 million, and increased 32% from the prior-year quarter. American Public Education predicted revenue increase in the range of 27% to 30% for the fourth quarter.

Total net course registration surged 25% to approximately 69,200, and net course registrations from new students grew 9% to approximately 16,000. As of September 30, 2010, about 77,700 students were enrolled in the system, reflecting an increase of 31%.

The company pointed that the enrollment of military students continues to be adversely affected by increased military operations in the U.S., and the deployment of military personnel in remote areas with limited accessibility to the Internet. The company also hinted that in order to offset the slowing pace of military enrollments, it is now focusing more on civilian students.

Net course registrations from students using the Title IV program climbed 58%, reflecting a 51% increase in net course registrations of new civilian students.

American Public Education now expects fourth-quarter 2010 net course registrations to jump between 26% and 29%, and net course registrations from new students to rise between 18% and 20%.

American Public Education has predicted a growth in student enrollments for the fourth quarter, despite the regulation proposed by the Department of Education that may weigh upon students' enrollments and the company's profits. Following this, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimate in the coming days.

The Department of Education proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment. The company derives a major portion of its revenues from federal student financial aid programs, which are Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.

The sector bellwether Apollo Group Inc. (APOL) also cautioned that enrollment in its first-quarter 2011 would drop by more than 40%, and withdrew its outlook for the fiscal year, citing an uncertain regulatory environment. 

The for-profit education institute hinted that operating income climbed 11% to $9.3 million, but operating margin contracted 370 basis points to 19.3% from 23% in the comparable quarter last year.

American Public Education ended the quarter with cash and cash equivalents of $86.6 million and without any long-term debt. For the nine-month period ended, capital expenditures were $14.4 million and cash from operations was $32.8 million.

The company's board has authorized a share repurchase program of $20 million, with a cap on purchase limit, so that the buyback does not result in the company having less than 18,000,000 shares. As of September 30, 2010, the company bought back 340,000 shares aggregating $9.2 million, and still has $10.8 million at its disposal for repurchase.

Currently, we prefer to be Neutral on American Public Education. Moreover, our Zacks #3 Rank, which translates into a short-term Hold rating, correlates with our long-term recommendation.