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Apollo Group (APOL) |
HenryTo
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 Posted: Sun Jul 12, 2009 4:56 pm Post subject: Apollo Group (APOL) |
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Apollo Group still rolling it in - but as Barron's (naively) points out, headwinds remain:
http://online.barrons.com/article/SB124631178448170331.html?ru=yahoo
| Quote: | On the fundamental side, Apollo has the competition beat. It is the largest player in the sector, with a market cap of 11.5 billion, more than three times that of its closest competitor DeVry (DV). The University of Phoenix is likely the best known of the branded schools.
So investors intent on targeting the industry would do well to pick Apollo, which has fallen about 20% since reaching a 52-week high of $90 in January.
But just because Apollo sits at the head of the class, doesn't mean it makes the grade as an investment.
A number of major headwinds will likely weigh on the shares. Barrons.com highlighted some of them in February and the thesis continues to play out. (See Weekday Trader, "Do Apollo Group Investors Need an Education?," Feb. 4, 2009.)
First is the Obama administration's push for community colleges (major competitors for for-profit schools' students) and the tough line it has taken with the industry. Deputy Undersecretary of Education Bob Shireman has said that he will tackle potential changes to the way for-profit recruiters are compensated, and may push to redefine the gainful employment metrics that for-profits tout.
(The University of Phoenix may see funding dry up as it approaches the 90/10 threshold: Currently, market-funded institutions become ineligible to participate in Title IV programs -- a major source of federal student aid -- if for any two consecutive fiscal years they derive more than 90% of revenue from Title IV programs, a level UOP is bumping up against.)
Although it's not clear how detrimental potential legislation could be at this time, it is an overhang that will be present in the coming months. And if federal funds are funneled toward community colleges, this too could hurt Apollo's enrollment.
Enrollment did beat expectations in the quarter, rising 22.5%, but Apollo's heady growth has been decelerating. The third-quarter number is down from the second quarter's 23.1% rise, itself a drop from the first quarter's 25.6%. Next quarter, Apollo will also begin to face difficult comparisons, as last year's fiscal fourth quarter saw enrollments jump from the single digits to 19.1%.
It has always been questionable how long such strong growth could continue, but given a potential turnaround in the economy, it will become even more difficult for Apollo and its peers to enroll students when there aren't millions of desperate and unemployed workers to recruit. (The stock has responded negatively in the past when expectation fell short of lofty projections.) While Apollo has made attempts to diversify globally, nearly all of its revenue still comes from the University of Phoenix.
The stock, however, appears reasonably priced. Apollo has a forward price/earnings multiple of 14, compared to DeVry's 17.4, Corinthian Colleges' (COCO) 15, Career Education's (CECO) 16.5 and Strayer Education's (STRA) 24.4. Additionally, it has $885 million in cash in its balance sheet, much more than any of its rivals.
So while the stock's valuation isn't a problem, larger, macro considerations make Apollo a lesson in careful stock picking. |
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rffrydr
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| Posted: Wed Feb 29, 2012 10:24 am Post subject: |
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Jobs kill 
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HenryTo
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| Posted: Tue Feb 28, 2012 1:05 pm Post subject: |
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Morningstar on APOL's fiscal 2Q earnings.
| Quote: | | We have consistently stated that, while there is a structural (long-term) case supporting the need and demand for higher education, near-term visibility beyond the current quarter remains limited. This view was reinforced Tuesday as Apollo Group APOL unexpectedly lowered its outlook for fiscal second-quarter new enrollment and full-year operating profit (by 9% and 5%, respectively). Although we will adjust our financial model based on this development, there is no change to our $59 fair value estimate. New enrollments for the second quarter are now projected to decrease in the low- to mid-single-digit range (versus a prior expectation of a mid-single-digit increase), which implies a roughly 5,000-student swing in the quarter. Put in perspective, while certainly not the direction that the company would like to be heading in, this drop would represent about 2% of the firm's total student population, and management reiterated its full-year revenue guidance of $4.1 billion-$4.3 billion. Although management cited internal (changing marketing channels) and external (improving labor market and competition) factors when it announced the enrollment and profit drop, there are actually several more moving parts to this story. We also believe the regulatory overhang, structural changes to recruiting that were implemented last year, and competition for "higher quality" students (following a decade of outsize growth) has effectively shrunk the addressable population. All in, it's going to take some time as the previous enrollment gains flow through the operating model, which is likely to lead to a series of choppy results for even the larger and better-run for-profit education providers. Our long-term thesis on the sector and Apollo remains intact, and while these stocks generally trade at discounts to our discounted cash flow-derived fair value estimates, we are still looking for signs of total enrollment growth and trough margins before we become more aggressive in recommending these names. As it stands today, we don't forecast a return to total enrollment growth for at least another 18 months, which suggests that, while nearly every firm has moved to rightsize operations and cut unnecessary costs, operating margins and fundamental cash flow generation haven't bottomed out yet. |
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rffrydr
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| Posted: Tue Feb 28, 2012 8:36 am Post subject: |
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It's a loss-leader today, down 13%: I just think it's found "its level."
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rffrydr
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| Posted: Sat Jan 07, 2012 10:25 am Post subject: |
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Posterboy for the Bust, Apollo was the short's annuity. Untimely ripped from the '09 rally it bottomed on tax-loss selling 2010. Even in Oct. it stayed well off its lows. With one-sixth, moving on one-five, of the economy dedicated to the sick and dying it was only a matter of time (and credit) that demand for certifiable simple skills could win out.
One of the last stocks I'd ever buy, you gotta hand it a euro-free investment award:
http://stockcharts.com/h-sc/ui?s=APOL&p=W&b=5&g=0&id=p16055241342
I like to think of it as a loss leader 
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HenryTo
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| Posted: Fri Jan 06, 2012 2:38 pm Post subject: |
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Morningstar's latest take on APOL's earnings. Stock rises to a new 52-week high.
| Quote: | | After the market close on Thursday, Apollo Group APOL posted revenue and adjusted operating profit for its fiscal first quarter, which were modestly ahead of our expectations. Despite the quarterly outperformance and management's cautiously optimistic tone, the firm changed little in its full-year outlook (prudent in our view). Although we will make several adjustments to our financial model, we do not anticipate a change to our $59 fair value estimate at this time. We are becoming incrementally more comfortable with Apollo as an investment (and shares trade at a modest discount to our fair value estimate), though we require a fairly wide margin of safety, as the for-profit educational firms generally operate with limited visibility from quarter to quarter. Still, we li ke the fact that: 1) new enrollments turned positive in 1Q, for the first time in six quarters; 2) management appears committed to operating in a lackluster environment, which includes plenty of regulatory scrutiny, and 3) operating margins may be close to cyclical trough levels. Fiscal first-quarter revenue fell 11% year over year to $1.2 billion while total enrollment dropped 15%. However, revenue came in slightly ahead of our forecast, as new degreed enrollments ticked up 13% (though nearly half of this gain related to timing) while average revenue per student increased 3.4% year over year. The external environment hasn't necessarily improved, but we believe that Apollo is performing relatively well in the short term, while also balancing its long-term strategic initiatives. Adjusted operating margins were down 600 basis points year over year (to roughly 24.3%), which contributed to a 22% drop in adjusted earnings per share in the quarter ($1.28 versus $1.63 a year ago). Alongside the earnings release, the company announced that co-CEO Chas Edelstein will retire at the end of August 2012. Given the co-CEO structure, deep bench, and extensive board, we see no issues with this planned transition. It's worth noting that Apollo still generates significant cash flow, and the company ended the quarter with more than $1.2 billion in cash and equivalents on the balance sheet. This provides plenty of flexibility, whether in pursuit of international growth or opportunities in the service area, we view these as long-term positives for the largest player in the domestic for-profit education space. We also expect continued share buybacks (1.7 million shares were repurchased during the quarter, for a total of $78 million) and there's $293 million remaining on the current authorization. We're mindful of the regulatory environment, despite the less onerous gainful employment rulings, which go into effect in July 2012. However, as we take a step back, our st ructural thesis (which calls for a return to normalized growth and margins in the medium term) remains intact, and if realized, suggests further long-term upside to the shares. |
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HenryTo
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| Posted: Fri Dec 16, 2011 11:39 pm Post subject: |
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APOL has actually done pretty well this year. Following is Morningstar's update on the for-profit education industry.
| Quote: | | As the 112th U.S. Congress looks to avoid a government shutdown by potentially pushing through a proposed omnibus bill (the current iteration spans 1,209 pages and covers $1 trillion in spending), we continue to monitor structural changes to education funding that may ultimately affect the for-profit education providers. So far, the news isn't bad, but we harbor long-term concerns that the Pell Grant program, in its current form, remains at structurally unsustainable levels. Education is certainly a sensitive topic, and we appreciate that there is an underlying need to ensure that those seeking to expand their knowledge through postsecondary coursework have access to do so. Pell Grants in particular represent a government-supported way for low-income students to attend college, but funding for this program has doubled in size in just three years and is up more than fivefold in the past decade. Democrats are looking to preserve the maximum Pell Grant (currently set at $5,550 annually), but things have started to tighten a bit. The current bill would reduce the number of students who automatically quality for the grant, by lowering the income cap and cutting out those who lack a high school diploma or GED, and students would now be limited to six years of Pell Grants rather than the current nine. Meanwhile, Republicans appear more willing to support across-the-board cuts as a way to at least think about the current deficit topic. If the Pell were cut in a meaningful way, while a positive from a fiscal standpoint, students would be forced to seek alternative funding sources, which could increase both borrowing costs and defaults. Additionally, schools like Apollo APOL, DeVry DV, Strayer STRA, and Capella CPLA, which collectively receive the vast majority of revenue from the US government (indirectly) through such Pell or other Title IV programs, may feel an incremental pinch to enrollments as well. In either form, we view potential changes as baby steps that won't have a dramatic near-term impact on the Pell or student enrollments, which still remain under pressure. Despite some criticism, longer-term Pell Grant spending is still expected to tick up 2%-4% annually over the next nine years and represent nearly $500 billion in cumulative outlays, which is a staggeringly large prospect. While discussions are ongoing, we are looking for incremental signs of potential cuts, and we recognize that education is likely to remain at the center of budgetary discussions for the foreseeable future. |
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rffrydr
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| Posted: Mon Jan 10, 2011 9:12 am Post subject: |
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Group making multi-year lows today. Republican take-back hasn't seemed to do much for sentiment in this group.
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HenryTo
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| Posted: Fri Dec 10, 2010 8:15 pm Post subject: |
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Morningstar on APOL and the for-profit education industry:
| Quote: | | Shares of Apollo Group APOL dropped 3% Thursday, in line with most of the firm's publicly traded peers, following the release of yet another congressional report that highlighted concerns surrounding the for-profit education sector. The publication, "Benefitting Whom? For-Profit Education Companies and the Growth of Military Educational Benefits," points out the dramatic increase in Department of Defense and Veterans Affairs funds to for-profit education companies over the past few years. For example, revenue from military educational benefits at 20 for-profit schools increased 211% between 2009 and 2010, while revenue from DoD and VA educational programs at 18 for-profit schools more than sextupled (to $460 million) over the past five years. The release of the report is concerning on many levels. While it is not indicative of any wrongdoing on either party's side, it does raise some flags. For an industry that indirectly generates the vast majority of its revenue from the U.S. government through various loan and grant programs, we think regulators have a vested interest and reason to keep a close watch on the educational system, its inputs, inner workings, and outputs. We recently took a fresh look at the proprietary (for-profit) education industry and the companies under coverage and downgraded our moat rating on Apollo Group because of subtle changes inherent in its business model and financials, largely as a result of pending regulation, which we believe adds near-term uncertainty to nearly all players across the for-profit education sector. Thursday's release reinforces our view. While we believe regulators do not intend to cripple this integral sector, the current message suggests that some level of change is required, and educators will probably need to adhere to a higher standard of accountability. Despite our pared-back growth forecasts, we continue to view shares of Apollo Group as undervalued and believe the current stock price does not fully reflect the company's normalized earnings power over the medium term. |
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HenryTo
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rffrydr
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| Posted: Wed Oct 20, 2010 7:22 pm Post subject: |
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That old market hero, Jack Welch, said in the Frontline episode below, it was his best bet. That even then you heard them say right there in the background they had to push the deals ahead of reform. Apparently the great recession has been very very good to these hustlers (which they also admit) as plum accreditations went up for distressed sales. They do have a point however: demand.
Degrees are the currency in an age of ignorance. Desperate people, desperate means. I'd hold my nose and buy.
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HenryTo
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| Posted: Wed Oct 20, 2010 3:45 pm Post subject: |
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Motley Fool's Inside Value on APOL:
| Quote: | Sell Apollo Group
By Joe Magyer
October 20, 2010
Our bread and butter at Inside Value is buying wide-moat businesses trading at out-of-favor, no-moat prices. Companies like McCormick, Wal-Mart, and Markel fall into this category. But when push comes to shove, we'll begrudgingly accept investing in a risky, low-quality business if we peg the odds of a big return in our favor.
And push has most definitely come to shove for Apollo Group (Nasdaq: APOL), which was thrown down an elevator shaft by Mr. Market last week after the company yanked its earnings guidance. Apollo's shares are off roughly 25% since before the release and 44% since our recommendation in October 2009.
Apollo's precipitous fall has led many of you to ask whether this represents a buying opportunity. Having more fully explored this situation, I'm prepared to say that it does not. I flatly lack confidence in this business' long-term prospects and its leadership,and those doubtsoutweigh my interest in the potential upside from today's prices. This is why I recommend you sell your shares of Apollo Group.
Let's start with the big picture. For-profit educators have been under increasingly intense scrutiny from regulators, analysts, and the media. Accusations of dodgy recruiting practices have dogged the companies and their stocks, including Apollo's, and high loan default rates of students at for-profit schools have caught the ire of lawmakers. According to the Department of Education, students in the award year 2008-2009 at for-profit schools represented 26% of the borrower population and 43% of all defaulters. That's a disconcerting disconnect, and one that hasn't gone unnoticed. The Department of Education itself is slated to hand down a series of new regulations in the coming weeks and months aimed at protecting students and boosting accountability at for-profit institutions. When all is said and done, I expect for-profit educators' long-term profitability to be substantially lower than in years past.
But back to Apollo. What sent its shares tumbling last week was management's statement that new-degree enrollments might fall 40% or more in the first quarter. The company cited several causes for the expected drop, including recent bad press, a new three-week orientation program for students with less than 24 transfer credits, and changes to the company's marketing strategy that should hopefully make for a more prepared, betterqualified student base. While I applaud these better-late-than-never efforts, the harsh reality is that they'll hurt Apollo's bottom line in the near to medium term, if not permanently. The market is right to have punished the stock.
We pride ourselves on investing against the headlines here at Inside Value, but that doesn't mean we'll stay in bed with any down-and-out business. Do Apollo's shares have a potential upside? Yes -- if regulatory concerns turn out to be overblown and recent leading indicators of poor enrollments prove fleeting. But do I have great confidence in the long-term health of this business? No. Far from it. I lack trust in Apollo's management and worry about the impact of new regulations and a potential cascade of lawsuits, andI'm not confident in the demand for Apollo's services, given its new less-aggressive marketing strategy, the rising popularity of distance learning programs at traditional schools, and an increasingly tarnished image in an industry where reputation matters in a big way.
The bottom line is that Apollo is a fundamentally riskier, less profitable business than when we recommended its stock a year ago. Much better risk-adjusted opportunities are hiding in plain sight in our Best Buys Now. |
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rffrydr
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HenryTo
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| Posted: Thu Oct 14, 2010 11:48 pm Post subject: |
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Morningstar on APOL's 4Q earnings:
| Quote: | | While Apollo Group's APOL fourth-quarter and full-year results were mostly in line with our estimates, management's near-term expectations for new enrollment were much lower than we anticipated: Management expects a year-over-year decrease in new enrollment in excess of 40% in the first quarter. We expected some reduction as a result of the company's recent decision to require students to participate in orientation programs, but this decline is greater than we had forecast, possibly because of the bad press surrounding for-profit education, changes in marketing, and various other factors. This decrease will probably translate into a decline in total enrollment in the midsingle digits in fiscal 2011, assuming relatively stable retention rates and similar year-over- year declines in all quarters. With lower total enrollment, revenue should decrease proportionally. However, any gain in revenue per student (coming from tuition increases or a mix shift toward higher-priced degree programs) could partially offset the enrollment decline. Management does not expect a return to growth until sometime in fiscal 2012, making the next several quarters difficult for Apollo. Adding to this difficulty, operating margins are likely to contract as enrollment declines. However, management did mention that it has the potential for cost savings of more than $100 million. Given a lower student base, decreasing faculty could be a key driver of cost reductions, as staff is one of the more variable costs. Management was not willing to give any specific guidance, but flat operating costs for the year (assuming a mid-single-digit revenue decline) would translate into a 4- to 5-percentage-point reduction in operating margins from the 28% achieved in fiscal 2010 (excluding one-time charges). If the company is able to reduce costs by $100 million, margins will be reduced by about 2 percentage points. While the next year or two will be more difficult for Apollo than we expected, the firm should remain highly profitable. |
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HenryTo
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HenryTo
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| Posted: Mon Mar 22, 2010 7:11 pm Post subject: |
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Morningstar on the prospects of the for-profit education sector. Also check out the comments at the end of the article:
http://news.morningstar.com/articlenet/article.aspx?id=329009
| Quote: | Community colleges have seen solid growth recently, but not enough to detract from the for-profit sector, in our opinion. The higher growth last year in community colleges compared to universities should have been expected, because shorter, more trade-based programs tend to be more countercyclical. However, community colleges are not as direct of a competitor to for-profit schools as one might think. Many for-profit schools focus on degree completion, so the increase in community college attendance does not necessarily detract from for-profit attendance. With various credit transfer agreements in place between community colleges and for-profit schools, this growth could actually fuel more demand in the for-profit sector. Furthermore, many community colleges are hit with the same budget constraints as state universities, limiting their expansion capabilities. Therefore, we don't view growth in this segment to be a substantial threat.
While the for-profit sector may be growing significantly, we caution investors to be careful when interpreting the next few quarters. The weak economy is driving people back to school as jobs remain scarce. We doubt the current growth trends are sustainable. Nonetheless, long-term demand for education should remain robust, in our opinion. With traditional schools lacking the desire and resources to soak up that demand, we anticipate that for-profit schools will continue to absorb a sizeable amount of that growth. Consensus estimates, as well as company management goals, imply that slower growth is on the horizon. However, that does not mean these schools can't achieve high-single-digit to low-double-digit enrollment growth. Add in an inflationary rate of revenue per student growth, and we think these companies can still achieve strong revenue growth during the coming years. |
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