Apollo Education's Starts at UOP Improve: Should You Invest? - Analyst Blog

On Nov 27, we issued an updated research report on Apollo Education Group, Inc. (APOL).

Apollo Education reported the fourth-quarter fiscal 2014 results on Nov 27. The company's earnings of 34 cents per share beat the Zacks Consensus Estimate of 27 cents by 26%. However, earnings declined 41.1% year over year due to lower revenues and profits. Though revenues beat the consensus mark, it declined 15.2% from the year-ago quarter due to lower enrollments at the University of Phoenix — Apollo Education's flagship university — which offset strong growth at its international business unit — Apollo Global.

University of Phoenix's enrollments have declined since 2010 due to lower demand and competitive pressures.

Encouragingly, however, the rate of decline in starts improved at a steady pace throughout 2014. The starts decline of 5.9% in the fourth quarter was lower than the declines of 12.9%, 16.5% and 22.9%, in the third, second and first quarter of 2014, respectively, indicating that the company's branding, program diversification and student retention initiatives are gradually yielding results.

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

Importantly, all the international colleges at Apollo Global have shown significant progress in 2014. Currently, Apollo Global has institutions in six continents. Management expects Apollo Global to become a much bigger part of its portfolio over the next five years.

Moreover, in fiscal 2013 and 2014, Apollo carried out a restructuring plan that included significant layoffs and campus closings (115 ground locations) to right-size its business, increase efficiency and become more competitive. Since 2012, Apollo Education has lowered its cost base — mostly fixed expenses — by roughly $900 million. The cost savings were used to strengthen the company's technology infrastructure, enhance marketing efficiency and improve student support services.

Other Stocks to Consider

Apollo Education carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the education industry include Strayer Education, Inc. (STRA), Grand Canyon Education, Inc. (LOPE) and Capella Education Company (CPLA). All these stocks sport a Zacks Rank #1 (Strong Buy).