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American Public Education, Inc.’s (APEI - Analyst Report) second quarter 2013 earnings of 60 cents per share beat the Zacks Consensus Estimate of 58 cents by 3.5%. Earnings exceeded management’s expected range of 53 cents to 58 cents a share. Earnings increased 17.6% year over year on the back of top-line growth.

The company’s investments in information technology infrastructure to support a larger and more diverse student population, automation of the Title IV processes, and the ePress initiative are manifesting favorable results. Further, American Public’s fraud prevention initiatives have been effective in reducing enrollment of students who abuse funds, thereby reducing bad debt expenses.

Total revenue grew 9% year on year to $80.9 million, missing the company’s expected range of approximately 10% to 13% growth. Revenues also missed the Zacks Consensus Estimate of $83.0 million by 2.5%. The lower than expected top-line increase was due to lesser than expected increase in total student enrollment.

Total enrollment increased 7% year over year to 99,500, lower than the company’s guidance of 9% – 12% increase. Total enrollment results due to temporary suspension of new enrollments in the Department of Defense voluntary education Tuition Assistance programs in March and April 2013. New student enrollments declined 9% to 17,900, better than management’s guided range of 10% to 14% decline.

Management believes that the prior-year quarters may have included enrollment of students who abused student aid. The company’s fraud prevention initiatives are reducing enrollment of students who abuse funds, which explains the decline in new student starts for the quarter

Operating income for the quarter increased 14.7% to $17.2 million, due to increase in revenue. Selling and promotional expenses increased 11.0% from the prior-year period to $16.1 million due to American Public’s increased marketing efforts.

Third-Quarter 2013 Outlook

For the third quarter of 2013, American Public expects revenue growth to be flat to up 4%. Management also expects third quarter 2013 total enrollments to remain flat year over year. New student enrollments are expected to decline in the range of 11% to 15%. Management further projects third quarter 2013 earnings between 52 cents and 56 cents a share, which marks a year-over-year decline of 7%–13%.

American Public carries a Zacks Rank #3 (Hold).  

Stocks that are currently better positioned and therefore worth considering include WebMD Health Corp. (WBMD - Snapshot Report), Brightcove, Inc. (BCOV - Snapshot Report) and Points International Ltd. (PCOM - Snapshot Report), all carrying a Zacks Rank #2 (Buy).

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