On Dec 31, 2014, we issued an updated research report on American Public Education, Inc. (APEI).
On Nov 6, this online provider of higher education delivered better-than-expected revenues and earnings in the third quarter of 2014. Its third quarter earnings of 51 cents per share beat the Zacks Consensus Estimate by 2%, and remained at the higher end of management’s expected range. However, earnings declined 16.4% year over year as higher costs associated with Hondros and higher taxes offset slightly better enrollment trends.
The company acquired Hondros College, Nursing Programs on Nov 1, 2013. Hondros operates through four campuses in Ohio and online. With growing population and demand for trained medical personnel, there is an increasing demand for medical programs. The acquisition of Hondros College offers a platform for expansion of health science programs in the long term.
Total revenue increased 4% year on year and surpassed the Zacks Consensus Estimate by 2%. The top-line growth was much better than management’s expectation of flat revenues.
However we believe the top line improved largely due to the inclusion of $7.5 million sales from Hondros against the absence of any such revenues last year.
In fact, American Public Education has reported better-than-expected results in the first three quarters of 2014 with earnings and revenue exceeding the company’s guidance by a wide margin, owing mainly to Hondros acquisition.
However, despite better-than-expected results, The American Public University System (APUS) segment has been reporting weak enrollment trends since past few quarters. Like the past few quarters, APUS enrollments in the reported quarter were adversely impacted by continued volatility and softness in military enrollments. Moreover, like the previous quarter, a significant slowdown in enrollments of students using federal student aid (FSA) hurt APUS enrollments.
Nevertheless, total enrollments at the newly acquired Hondros College rose 8% in the quarter, owing to strong demand for nursing education and management’s efforts to improve student engagement and activity through expanded use of social media and development of strategic relationships.
Outlook
This post secondary education provider issued an encouraging outlook for the next quarter, expecting sequential improvement in enrollment trends, due to easy comparisons from the prior year quarter, which was hurt by the partial government shutdown in October last year.
Management expects fourth-quarter 2014 total enrollments to increase in the range of 6% to 8% compared to 5% decline in third quarter 2014, while student starts are expected to remain in the range of flat to up 2%. Management also stated that new student enrollments at Hondros will increase approximately 16% in fourth-quarter 2014.
American Public expects revenues to increase between 7% and 9% year over year. Management further projects fourth-quarter 2014 earnings between 50 cents and 54 cents.
American Public carries a Zacks Rank #2 (Buy).
Stocks to Consider
Stocks worth considering in the education industry include Lincoln Educational Services Corp. (LINC), Bright Horizons Family Solutions, Inc. (BFAM) and Grand Canyon Education, Inc. (LOPE). While Lincoln Educational Services Corp. sports a Zacks Rank #1 (Strong Buy), Bright Horizons and Grand Canyon hold a Zacks Rank #2.
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