Affordable courses, online programs and strategic initiatives are driving the performance of American Public Education, Inc. APEI. However, volatility and softness in enrollment by students using FSA and TA, along with stringent regulation pose concern for this Zacks Rank #3 (Hold) company.
American Public Education’s shares have rallied 90.4% in the past year against the industry’s fall of 6.3%. The upside can be primarily attributed to robust earnings surprise trend. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average surprise of 26.1%. Also, earnings estimates for 2018 have inched upward by 2.6% over the past 30 days, depicting that analysts are optimistic of the company’s future earnings prospect.
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Growth Drivers
Even though it announced an increase in tuition fees in July 2015, American Public University System, Inc. ("APUS") continues to be a leader in college affordability and value. According to Department of Education's College Affordability and Transparency Center, during 2015-2016 (the most recent data available), APUS ranked the 21st lowest in tuition and 14th lowest in net price for private for-profit, four-year institutions, which is 47% less than the national average. This is expected to benefit the company in the long haul.
Also, American Public Education is one of the leading online post-secondary education providers to the military, military-affiliated, and public service communities. 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.
Meanwhile, the company intends to drive students’ persistence rates by improving the quality of student mix, providing new tools and carrying out many such initiatives that increase students’ engagement and classroom interactivity. In 2017, APUS launched Momentum, its Competency-Based Education program that emphasizes on the achievement of knowledge and skills, providing an easy degree path to non-traditional students, specifically those who are looking for any alternative to usual schedule and tuition constraints.
Meanwhile, Hondros College, Nursing programs have also been performing well. In the second quarter of 2018, total student enrollment rose 17%, reflecting an increase in new student enrollment by 5% year over year.
Concerns
APUS sales and enrollment are trending downward due to persistent volatility and softness in new students’ enrollment using Federal Student Aid (“FSA”) and military tuition assistance (“TA”) for the past few quarters. This is hurting the company’s overall enrollment trends and revenues. In the second quarter, net course registrations by new students using FSA at APUS declined 13.4% year over year. Overall, net course registrations by new students fell 1%, whereas total net course registrations remained flat on a year-over-year basis at APUS. The decline in new students using TA is primarily due to changes in the administration of TA program by the Department of Defense, or DoD, as well as several DoD rules that obstructed the company to support both enrolled and prospective students on military bases.
American Public Education derive a significant portion of its 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. The Title IV programs account for a major portion of the company’s revenues and are administered by the Department of Education. Hence, any change in regulations and policies of the Department of Education, as well as state education and accrediting agencies might affect the company’s performance in the future.
Stocks to Consider
Some better-ranked stocks in the School industry include Bridgepoint Education, Inc. BPI, Strategic Education, Inc. STRA and Lincoln Educational Services Corporation LINC. While Bridgepoint and Strategic Education sport a Zacks Rank #1 (Strong Buy), Cambium Learning Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Bridgepoint reported better-than-expected earnings in two of the trailing four quarters, with an average beat of 3.03%.
Strategic Education’s earnings for 2018 are expected to increase 46%.
Lincoln is expected to record 81.3% earnings growth in 2018.
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