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Apollo Group shares jump on accreditation news

NEW YORK (AP) -- Shares of Apollo Group Inc. rose Thursday on news of the renewal of its University of Phoenix's accreditation.

THE SPARK: Apollo said late Wednesday that The Higher Learning Commission reaffirmed the school's accreditation through the 2022-23 academic year.

But the for-profit education company said it was placed on "notice" status for two years, meaning the commission is still concerned about Apollo's administrative structure and governance and it will have to show that it meets those standards.

THE BIG PICTURE: In February, Apollo said the commission was considering placing the University of Phoenix on probation, because of alleged deficiencies involving its administrative structure and governance. An advisory panel later recommended renewing the accreditation and placing the company on notice status because of the governance problems and concerns about its student assessment and faculty scholarship and research for doctoral programs.

A sanction from the commission could have restricted Apollo's qualifications for operating in some states and potentially limited its eligibility for student financial aid. Losing accreditation would also have limited the recognition of its employees and the degrees and credits earned by its students, which would make its schools less desirable to both faculty and students.

THE ANALYSIS: BMO Capital Markets analyst Jeffrey Silber, who backed his "Outperform" rating for the stock, said that while the University of Phoenix still faces scrutiny, the outcome is much better than the school being placed on probation.

"In addition, we believe it could be seen as a positive signal for the industry that the accrediting bodies may be more willing to work with schools like University of Phoenix that have made efforts to improve quality and outcomes," Silber wrote in a note to investors.

Stifel Nicolaus' Robert Craig backed his "Hold" rating. He said that while he thinks Apollo's management is moving the Phoenix-based company in the right direction, it could be a while before their efforts result in rewards.

THE SHARES: Up 95 cents, or 5 percent, to $18.84 after peaking at $19.86. Over the past 52 weeks, the company's shares have traded between $15.98 and $35.66.