Earnings Preview: American Public Education

American Public Education Inc. (APEI), an online provider of higher education, is scheduled to report its fourth-quarter 2010 financial results on February 17, 2011. The current Zacks Consensus Estimate for the quarter is 47 cents a share. For the quarter under review, revenue is $56 million, according to the Zacks Consensus Estimate.

Third-Quarter 2010, a Synopsis

American Public Education’s third-quarter 2010 results have topped the Zacks’ expectations. The quarterly earnings of 30 cents a share beat the Zacks Consensus Estimate by a penny, and rose 11% from 27 cents earned in the prior-year quarter.

Total revenue of $48.3 million came in ahead of the Zacks Consensus Estimate of $47 million, and increased 32% from the prior-year quarter.

Total net course registration surged 25% to approximately 69,200, and net course registrations from new students grew 9% to approximately 16,000. As of September 30, 2010, about 77,700 students were enrolled in the system, reflecting an increase of 31%.

Management Guided

American Public at its last earnings release guided fourth-quarter 2010 earnings between 45 cents and 47 cents a share. American Public Education predicted revenue increase in the range of 27% to 30% for the fourth quarter.

Management now expects fourth-quarter 2010 net course registrations to jump between 26% and 29%, and net course registrations from new students to rise between 18% and 20%.

Fourth-Quarter 2010 Zacks Consensus

Analysts considered by Zacks, expect American Public to post fourth-quarter 2010 earnings of 47 cents a share. The current Zacks Consensus Estimate reflects a growth of 6.8% from the prior-year quarter earnings. The current Zacks Consensus Estimate for the quarter ranges between 46 cents and 48 cents.

Zacks Agreement & Magnitude

Of the 14 analysts following the stock, none of the analysts have revised their estimates in the last 7 or 30 days, leaving the Zacks Consensus Estimate unchanged.

Positive Earnings Surprise History

With respect to earnings surprises, American Public has topped the Zacks Consensus Estimate over the last four quarters in the range of 3.5% to 12.1%. The average remained at 6.4%. This suggests that American Public has beaten the Zacks Consensus Estimate by an average of 6.4% in the last four quarters. Given the past performance we expect the company to outperform the Zacks Consensus Estimate.

American Public in Neutral Lane

American Public Education has carved a unique niche for itself in the online post secondary education industry by focusing on recruits serving the U.S. military as well as federal, national, and local law enforcement agencies. 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.

American Public has witnessed an impressive revenue growth over the last three fiscal years. During 2007–2009, revenue surged from $69.1 million to $149 million recording a compound annual growth rate of 47% driven by high student satisfaction and referral rates, regional accreditation, and access to Title IV programs. Furthermore, management expects revenue to rise between 27% and 30% in fourth-quarter 2010.

The company’s sustained effort to expand educational programs helps it to boost enrollments. However, American Publicindicated that the enrollment of military students continues to be adversely affected by increased military operations in the U.S., and the deployment of military personnel in remote areas with limited accessibility to the Internet. The company also hinted that in order to offset the slowing pace of military enrollments, it is now focusing more on civilian students.

American Public now expects fourth-quarter 2010 net course registrations to jump between 26% and 29%, and net course registrations from new students to rise between 18% and 20%.

We observe that American Public’s prediction of growth in student enrollments for the fourth quarter comes despite the regulation proposed by the Department of Education that may weigh upon students’ enrollments and its profits.

The Department of Education proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The company derives a major portion of its revenues from federal student financial aid programs, the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.

Currently, we prefer to have a long-term ‘Neutral’ rating on the stock. However, American Public, which competes with Apollo Group Inc. (APOL), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

AMER PUB EDUCAT (APEI): Free Stock Analysis Report

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