On Jun 20, 2014, we issued an updated research report on American Public Education, Inc. (APEI).
On May 8, this online higher education provider reported better-than-expected results in the first quarter of 2014. Apart from surpassing the Zacks Consensus Estimate for both earnings and revenue in the quarter, first-quarter 2014 results exceeded the company’s guidance.
American Public’s first-quarter earnings of 59 cents per share crushed the Zacks Consensus Estimate and management’s expected range of 43 cents to 48 cents by a wide margin. Earnings beat expectations despite a year-over-year decline attributable to lower marketing expenses, cost savings and efficiencies and the company’s efforts to reduce unnecessary spending.
Revenue surpassed the Zacks Consensus Estimate and management’s expected range of flat to an increase of 3%. Total revenue of $88.6 million increased 6% year on year. We believe the top-line beat was only due to the inclusion of $7.2 million of sales from Hondros against the absence of any such revenues last year. However, revenues continued to decline at APUS, down around 3% this quarter to $81.3 million due to weak enrollment trends.
The company has been witnessing declining enrollment levels for the past few quarters due to continued volatility and softness in military enrollments and uncertainty related to Tuition Assistance programs. However, a 4% decline in total enrollment in first quarter 2014 was narrower than management’s expectation of 5% to 7% decline. New student enrollments (student starts) declined 8%, within management’s expectation of 7% to 9% decline.
However, the company provided a weak outlook for the second quarter. Management expects continued military enrollment hurdles in the second quarter of 2014. Management warned that second-quarter 2014 total enrollments would decline in the range of 2% to 5% while student starts are expected to go down in the range of 4% to 7%. American Public expects revenues to increase in the range of 3–5%. Management further projects second-quarter 2014 earnings between 43 cents to 50 cents. Management also stated that new student enrollments at Hondros decreased approximately 10% in second-quarter 2014.
American Public Education carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks in the education sector include Lincoln Educational Services Corporation (LINC), DeVry Education Group Inc. (DV) and Strayer Education Inc. (STRA). While Lincoln Educational Services sports a Zacks Rank #1, DeVry Education and Strayer Education carry a Zacks Rank #2 (Buy).