We recently reverted to a Neutral recommendation on American Public Education, Inc. (APEI) from Outperform owing to a soft fourth quarter guidance issued at the third quarter conference call on Nov 5. Moreover new enrollments have been sluggish for the past few quarters. American Public Education carries a Zacks Rank #3 (Hold).
Why the Downgrade?
Even though American Public beat the Zacks Consensus Estimate for revenues and earnings in the third quarter of 2013, its fourth quarter outlook was weak. Also the company has been witnessing a consistent decline in new enrollments for the past few quarters.
Management announced at the third quarter conference call, enrollments in the fourth quarter have been adversely impacted by the temporary suspension of the Title IV funds in the U.S. due to hurdles from the government shutdown in October.
Considering these factors, American Public expects revenues to decline in the range of 5%–9%. Management also expects fourth-quarter 2013 total enrollments to decline in the range of 3%–7%. New student enrollments are expected to decline in the range of 5% to 9%. Management further projects fourth-quarter 2013 earnings between 50 and 54 cents per share, which marks a year-over-year decline of 27%–32%. The earnings guidance also falls short of the Zacks Consensus Estimate of 68 cents. Selling and marketing expenses ratio for the fourth quarter is anticipated to be above the long-term goal of 20% of revenues as a result of lower-than-expected revenues in October and November.
A tough regulatory environment also remains a persistent overhang.
Despite the third-quarter beat, estimates have mostly moved downwards for 2013 and 2014. The Zacks Consensus Estimate for 2013 moved down 3.6% to $2.39 per share and 3.2% to $2.69 per share for 2014 over the last 60 days.
Stocks That Warrant a Look
Better ranked stocks in the same industry include ITT Educational Services Inc. (ESI), Apollo Education Group, Inc. (APOL) and DeVry Education Group Inc. (DV). ITT Educational Services carries a Zacks Rank #1 (Strong Buy), whereas Apollo Education Group and DeVry Education Group hold a Zacks Rank #2 (Buy).