Piper Jaffray Remains Neutral On Apollo Group Despite Better Than Expected Earnings

Despite better-than-expected F1Q EPS, Piper Jaffray looks for continuing pressure on Apollo Group's APOL revenue and earnings comparisons over the balance of F2011, suggesting it is too early to revisit the shares. While a less threatening regulatory environment would serve as a positive catalyst for the postsecondary group overall, Citi believes APOL's shares may be stuck in a trading range until it gets closer to a rebound in earnings growth. Citi recommends investors revisit the shares in 2H F2011. Revenues and EPS were modestly ahead of its expectations, on in-line enrollment performance. EPS of $1.61 benefited from the company's aggressive cost management efforts. New student starts fell 42% y/y, with total enrollments down 3.8%. The company attributed roughly a quarter of the decline in starts to its new orientation program, which was fully implemented in F1Q. Based on the weakness in F1Q starts, and an expectation of a similar decline in F2Q, we continue to anticipate accelerating rates of decline in enrollments and revenues over the balance of F2011. This will translate into margin pressure despite an intense focus on rightsizing costs to reflect softer near-term enrollments. F2011 estimate moves to $4.36 from $4.08, while F2012 estimate moves to $4.13 from $3.85. APOL closed Monday at $35.94