On Apr 10, 2014, we issued an updated research report on American Public Education, Inc. (APEI).
On Feb 27, this online higher education provider reported disappointing fourth-quarter 2013 results and provided a bleak outlook for the upcoming quarter. Apart from missing the Zacks Consensus Estimate by 5.6%, fourth-quarter 2013 earnings declined 31.1% year over year due to military enrollment hurdles and higher costs.
Total revenue declined 4% year on year, slightly better than management’s expectation of a decline of 5–9%. Revenues also beat the Zacks Consensus Estimate by 2.3%. We believe that the top-line beat was only due to the inclusion of $3.8 million of revenues from Hondros. APUS revenues were lower than expected due to weaker enrollment trends.
The poor quarterly results were mostly due to a worse-than-expected decline in total and new student enrollment levels. Enrollments in the fourth quarter were adversely impacted by a decline in enrollments of students using Department of Defense (DoD) Tuition Assistance or TA benefits. The temporary suspension of the TA due to the government shutdown in Oct 2013 and lowering of the benefits by the military greatly hurt enrollments of military students. The company also witnessed weak margins due to increase in expenses.
Estimates for 2014 and 2015 were largely revised downwards in response to the soft fourth-quarter results and bleak outlook for the upcoming quarter. Management expects continued military enrollment hurdles in the first quarter of 2014. New enrollments of students using TA benefits are expected to decline again in the first quarter due to ongoing budgetary constraints and uncertainty.
Management expects first-quarter 2014 total enrollments to decline in the range of 5% to 7% while student starts are expected to go down in the range of 7% to 9%. American Public expects revenues to remain in the range of flat to an increase of 3%. Management projects first-quarter 2014 earnings between 43 cents and 48 cents, which marks a significant decline from the prior-year level.
Key Picks from the Sector
American Public Education carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the education sector include Strayer Education Inc. (STRA), K12, Inc. (LRN) and Apollo Education Group, Inc. (APOL). While Strayer Education and K12 sport a Zacks Rank #1 (Strong Buy), Apollo Education carries a Zacks Rank #2 (Buy).