APOL Apollo Education Grp., Inc.

Apollo Group Inc. (APOL), one of the world's largest private education providers, posted its third-quarter 2011 results. Street analysts had nearly a week to ponder on the news.

In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

On June 30, 2011, Apollo Group delivered earnings of $1.45 in the third quarter of 2011, outperforming the Zacks Consensus Estimate of $1.34. However, quarterly earnings declined 16.7% from the prior-period earnings of $1.74 per share.

Apollo delivered total revenue of $1,235.8 million during the quarter, down 7.6% from the year-ago quarter attributable to lower enrollments, partially offset by selective tuition price increases and better student retention rates.

University of Phoenix Degreed Enrollment dropped 16.4% to 398,400 primarily due to a fall of 40.5% in New Degreed Enrollment. Total revenue also surpassed the Zacks Consensus Estimate of $1,200.0 million.

Management's Guidance for 2011

The company expects net revenue in the range of $4.65–$4.75 billion in fiscal 2011 and operating income in a $1.15–$1.20 billion band. For fiscal 2012, net revenue is expected to be in the range of $4.0 billion to $4.25 billion and operating income between $675.0 million and $800.0 million.

(Read our full coverage on this earnings report:Apollo Beats Street, Profit Falls)

Agreement of Analysts

Estimate revision trends for the upcoming fourth quarter of fiscal 2011 portrayed positive sentiments among most of the analysts as 9 out of 14 analysts, who revisited their estimates have upgraded it while 5 analysts have downgraded their estimates.

Whereas for first quarter of fiscal 2012 portrayed negative sentiments among most of the analysts. Over the last 7 days, 12 out of 22 analysts revisited their estimates for first-quarter 2012, of which 5 upgraded and 7 downgraded their estimates.

For full fiscals 2011 and 2012, analysts have positive sentiments. For fiscals 2011, 17 out of 18 analysts revisiting their estimates have upgraded while the remaining one has lowered its estimate over the last 7 days. Similarly, for fiscal 2012, 18 analysts adjusted their estimates in the upward direction, while only one analyst lowered its estimate.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Apollo Group depicts an optimistic outlook for the upcoming fourth-quarter 2011, first-quarter 2012 and for the full fiscals 2011 and 2012. The magnitude of estimate revision for the fourth quarter of 2011 has been increased by 3 cents to 94 cents per share.

Over the last 7 days, estimated earnings for first quarter of fiscal 2012 have been increased by a penny to $1.12 per share. Moreover, for fiscals 2012 and 2013, estimated earnings have been increased by 15 cents and 7 cents to $4.82 and $3.23, respectively, over the last seven days.

Our Recommendation

Apollo Group is the industry leader in the U.S. private education services sector. The company has a strong experience of more than 35 years in the education industry and possesses one of the most powerful brands, University of Phoenix, in the sector. This provides a hard-to-replicate competitive advantage to the company and bolsters its leading position in the market.

Moreover, post-secondary enrollments are expected to grow further due to population growth, a shift in the U.S. economy from manufacturing to service and increasing wage gap between people with post-secondary degree and those with only a high school diploma.

Enrollments in online programs are increasing more rapidly than campus-based programs, as students look to balance school with work and personal obligations. With 102 campuses and 154 learning centers in the U.S., Apollo is well positioned to continue to grow both its online and campus operations.

However, Apollo Group faces intense competition from other companies offering postsecondary education, such as DeVry Inc. (DV), Strayer Education Inc. (STRA) and Career Education Corp. (CECO).

Apollo's shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.

 
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