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Bullish on American Public Education

Zacks Equity Research

We maintain our outperform rating on American Public Education (NasdaqGS:APEI - News) based on the company’s strong fundamentals and better-than-expected third-quarter 2011 results.

The healthy results came on the heels of robust student enrollments and the company has predicted a growth of 29% in new student enrollments for the fourth quarter. It comes as a surprise as another for-profit education company, Capella Education Company (NasdaqGS:CPLA - News) cautioned that new enrollment in fourth-quarter 2011 is expected to tumble by approximately 10%.

American Public Education is well positioned in the online post secondary education industry due to its focus on recruits serving the U.S.military as well as public service personnel. Moreover, the company’s part-time programs are well suited to irregular and extended work schedules of these personnel, who travel and relocate frequently and have limited financial resources. This provides a significant upside potential for the company.

Better-Than-Expected Results

The quarterly earnings of 60 cents a share beat the Zacks Consensus Estimate of 42 cents, and rose twofold from 30 cents earned in the prior-year quarter.

Management now projects fourth-quarter 2011 earnings between 58 cents and 60 cents a share that dovetails with the Zacks Consensus Estimate of 59 cents.

Total revenue of $65.3 million, surged 35% from the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $63 million. American Public Education forecast a revenue growth of approximately 29% for the fourth quarter of 2011.

Facts for Shareholders

American Public Education has witnessed an impressive revenue growth over the last four fiscal years. During 2007-2010, revenue surged from $69.1 million to $198.2 million, recording a compound annual growth rate of 42% driven by high student satisfaction and referral rates, regional accreditation, and access to Title IV programs. Furthermore, management expects revenue to rise approximately 29% in fourth-quarter 2011.

The company’s sustained effort to expand educational programs helps it to boost enrollments. Net course registrations rose 32% and net course registrations from new students climbed 53% in third-quarter 2011. Management forecasted net course registrations to rise approximately 28%, and net course registrations from new students to jump approximately 29% in fourth-quarter 2011.

Further, American Public Education has a healthy debt-free balance sheet, with cash and cash equivalents of $107.3 million at the end of third-quarter 2011. This offers the company financial flexibility to drive future growth.

Closing Remarks

American Public Education’s focus on serving military and public service personnel, high student referral rates and accreditation enable it to consistently deliver impressive top and bottom lines.

The company is now primarily focusing on increasing net registrations from civilian students, to safeguard itself from the adverse impact of a fall in military registrations due to increased military operations.

Currently, we maintain our long-term Outperform recommendation on the stock. Moreover, American Public holds a Zacks #3 Rank that translates into a short-term Hold rating.

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