Can Apollo Education (APOL) Maintain the Earnings Streak? - Analyst Blog

Apollo Education Group Inc. (APOL) is set to report fourth-quarter and full-year 2014 results on Oct 21, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 4.23%. In fact, Apollo Education has beaten the Zacks Consensus Estimate for the past four quarters.

Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

Apollo Education's enrollment trends have remained weak for several quarters in a row due to lower demand and competitive pressures. Encouragingly, however, starts improved sequentially in all the three quarters of 2014 indicating that the company's branding, program diversification and student retention initiatives are gradually yielding results.

The company is consistently enhancing and expanding its services and investing in academic quality to improve student experience and outcomes. Apollo's initiatives include investments in adaptive learning, new degree and certificate-based programs, new modernized and significantly upgraded online classroom, and new learning and service platforms. In addition, innovation and recent price cuts should improve student value proposition and retention rates, going ahead.

In the fourth quarter, however, starts are expected to decline at about the same rate as the third with potential for some improvement. Third-quarter starts at Apollo Education's flagship, University of Phoenix (UOP), which accounts for 90% of its revenues, declined 12.9%.

Apollo's cost cut efforts like layoffs and campus closings should save some costs in the fourth quarter. However, total non-variable operating expenses, particularly marketing, are expected to increase slightly on a sequential basis in the fourth quarter due to seasonality, recent acquisitions and investments in the UOP college realignment and student retention efforts. Overall, costs in the second half are expected to be higher than the first due to the Milpark and Open Colleges acquisitions and realignment initiatives at the UOP. Tax rate is expected to be approximately 41% in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Apollo Education is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP is 0.00%. This is because both the Most Accurate estimate as well as the Zacks Consensus Estimate is pegged at 27 cents.

Zacks Rank: Apollo Education's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Stocks that have both a positive Earnings ESP and a favorable Zacks Rank are:

DeVry Education Group, Inc. (DV), with an Earnings ESP of +32.26% and a Zacks Rank #3 (Hold).

K12, Inc. (LRN), with an Earnings ESP of +9.09% and a Zacks Rank #3.

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), with an Earnings ESP of +1.21% and a Zacks Rank #2 (Buy).

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