On Sep 30, 2014, we issued an updated research report on American Public Education, Inc. (APEI).
On Aug 5, this online provider of higher education reported modest results in second-quarter 2014.
American Public Education’s earnings of 56 cents per share beat the Zacks Consensus Estimate by 12% and management’s expected range of 43 cents to 50 cents.
We believe that American Public Education beat expectations only because of expense savings at American Public University System (APUS), its primary segment, and lower share count due to share buybacks. However, earnings declined 8% year over year due to continued military enrollment hurdles at APUS and higher costs associated with Hondros.
Total revenue increased 6% year on year to $85.5 million, slightly beating the Zacks Consensus Estimate of $85.0 million. The top-line growth was better than management’s expectation of an increase in the range of 3%–5%.
However, like the first quarter, we believe the top-line beat was only due to the inclusion of $7.2 million sales from the Hondros against the absence of any such revenues last year.
In addition, the APUS segment has been reporting weak enrollment trends for the last three quarters due to continued volatility and softness in military enrollments. Moreover, a significant slowdown in enrollments of students using federal student aid (FSA) also hurt APUS’ enrollments in this quarter. As the uncertainty concerning the stability of the TA program continues, the enrollment of APUS is likely to stay soft. Some other education companies also witnessing weak enrollment are Strayer Education Inc. (STRA), Universal Technical Institute, Inc. (UTI) and Capella Education Company (CPLA).
In fact, management expects third-quarter 2014 total enrollments to decline in the range of 6% to 9%, while student starts are expected to go down in the range of 8% to 12%. American Public expects revenues to remain flat year over year. Management further projects third-quarter 2014 earnings between 44 cents and 51 cents per share.
American Public Education is one of the leading providers of education or post-secondary education to the military. These 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. In addition, the affordability of the company’s courses and programs will benefit the company in the long run due to increasing price sensitivity among students in this challenging economic environment.
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