American Public Education, Inc.’s APEI strategic initiatives have been driving its performance over the last few quarters. Also, affordable courses and online programs are adding to the positives.
However, volatility and softness in enrollment by students using Federal Student Aid (“FSA”), military tuition assistance (“TA”) and veterans benefits (“VA”), along with stringent regulation raises concern. Shares of American Public Education have gained 14.5% in the past three months, underperforming its industry’s rally of 18.6%.
Let’s delve deeper into the factors that substantiate its Zacks Rank #3 (Hold).
Major Growth Drivers
American Public Education has undertaken several initiatives to improve enrollment trends and students’ persistence. The company has improved the quality of student mix, introduced new tools for students and taken measures to increase students’ engagement and classroom interactivity. Also, it has launched competency-based programs under an initiative called APUS Momentum. The company believes that greater students’ persistence will lead to improved online learning experience, increased graduation rates and higher referral rates.
It implemented changes to the curriculum of Hondros College (HCN), and currently focuses on the launch of a new branding campaign and campuses through 2020.
American Public Education or APEI segment, contributing 87.4% to the total revenues, majorly operates with American Public University System, Inc. (APUS), which is one of the most affordable online post-secondary education providers. The company has undertaken major initiatives to stabilize enrollment at APUS. It has refined its marketing strategies with predictive modeling techniques, in order to reengineer enrollment management processes. Also, the company aims at sharpening digital marketing campaigns to leverage its relationships with military and other high-value student populations.
Although APUS enrollment during fourth-quarter 2018 declined 2%, the company expects growth in the same in the upcoming quarter, backed by the positives from the above-mentioned initiatives. It expects net course registrations by new students to increase 8% year over year in first-quarter 2019. Total net course registrations are also projected to increase 1% from the prior-year level.
APUS is a leading education provider to the military, military-affiliated and public service communities. Its online programs are well-suited for the unpredictable and demanding work schedules of military personnel who are required to travel and relocate frequently, and have limited financial resources. As of Dec 31, 2018, approximately 55% of APUS’s students have served the military on active duty at the time of initial enrollment and 14% of APUS’s students were a military veteran.
Causes of Concerns
APUS sales and enrollment are trending downward over the last few quarters, owing to continued softness in enrollment by students using FSA, TA and VA.
In fourth-quarter 2018, net course registrations by new students using FSA declined 11.5% year over year. Net course registrations by new students utilizing VA fell 8.3% and the same using cash and other sources declined 4.5% in the same period. Overall, net course registrations by new students and total net course registrations declined about 1% each. Additionally, new student enrollment at HCN decreased 4% from the prior-year period.
Meanwhile, for first-quarter 2019, the company expects total revenues in the range of flat to down 5%. Earnings are anticipated in the range of 29-34 cents per share, below the year-ago level of 35 cents. The Zacks Consensus Estimate for first-quarter 2019 earnings has declined 15.8% over the past seven days to 32 cents, which reflects 8.6% year-over-year decline.
American Public Education derives a significant portion of revenues from Title IV federal aid programs. These programs are subject to stringent regulations of the Department of Education and accrediting agencies recognized by the Secretary of Education.
Some better-ranked stocks in the Zacks Schools industry are Career Education Corporation CECO, Adtalem Global Education Inc.’s ATGE and K12 Inc. LRN. While Career Education currently sports a Zacks Rank #1 (Strong Buy), both Adtalem and K12 carry a Zacks Rank #2 (Buy). You can the complete list of today’s Zacks #1 Rank stocks here.
Career Education is expected to record an EPS growth rate of 9.5% in the current year.
Adtalem has an expected earnings growth rate of 2.5% for fiscal 2019.
K12’s earnings are expected to increase 16.2% in fiscal 2018.
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