UPDATE: Compass Point Upgrades Apollo Education
In a report published Wednesday, Compass Point analyst Michael Tarken upgraded Apollo Education Group (NASDAQ: APOL) from Sell to Neutral, raising its price target to $30.00 from $20.00.
According to the report, the upgrade and price target rise followed APOL posting a second consecutive quarterly beat driven by lower than expected expenses.
“We continue to expect top-line pressure for the foreseeable future driven by a mix of recruiting and regulatory challenges, but at this point, we believe the company's capital and expense flexibility, combined with a reasonable valuation, warrant a more neutral view,” the report noted. “In addition, expectations for new start growth already remain low, and while we do expect pricing power to remain constrained, the company is more restricted from cutting tuition meaningfully given its elevated 90/10 ratio. Over the longer term, we continue to expect increasing competition from both traditional and non-traditional players will step up and impede the company's forward growth rates, but for now, that should have less of an impact over the next 12 months.”
Some highlights from the report included:
-”Adjusted EPS of $1.04 beats our estimate of $0.88 and consensus of $0.90.” -”Revenues of $856 million were in-line with our estimate and fell 19% YOY while adjusted operating expenses of $655 million declined 20%.” -”The company continues to expect FY14 revenue per student to be down 2-4% and ending enrollment of 230,000 students.”
Some potential risks from the report included:
-”Apollo and the for-profit education industry face extensive regulation on the federal and state levels.” -”Changes in the U.S. and global economy could impact Apollo's enrollment levels and student default rates.” -”Apollo faces intense competition in the higher education market from both public and private institutions.”
APOL closed Tuesday at $30.94 with shares trading up at 14.53 percent.
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