We expect the leading private education service provider, Apollo Group Inc. (APOL - Analyst Report), to beat expectations when it reports fiscal fourth-quarter and full year 2013 results on Oct 22.
Why a Likely Positive Surprise?
Our proven model shows that Apollo is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Earnings ESP), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 20.0%. This is very meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: Apollo carries a Zacks Rank #3 (Hold).Note that stocks with Zacks Ranks of #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Apollo’s Zacks Rank #3 (Hold) and +20.0% ESP makes us very confident about a positive earnings beat on Oct 22.
What is Driving the Better-Than-Expected Earnings?
Solid cost control initiatives are expected to make up for the sluggish enrollment trends to lead to a positive earnings surprise in the upcoming quarter. Education companies like Apollo, DeVry, Strayer Education Inc. (STRA - Analyst Report) and others have been witnessing weak enrollment trends in the past quarters. Sluggish new enrollment growth has been affected by the changing regulatory requirements, sluggish demand due to students’ aversion to debt, robust competition and a volatile economy. However, Apollo’s accelerated efforts to right-size its business through significant layoffs and campus closings will make it more competitive in the long term.
Moreover, investments in adaptive learning, curriculum development, new learning systems and studentservice platforms should improve student value proposition and retention rates; thereby boosting enrollments.
In July, the Higher Learning Commission (HLC) reaffirmed the accreditation for Apollo Group’s flagship university, University of Phoenix, for a ten-year period. The University accounts for more than 90% of Apollo’s revenues and the renewal cleared a major overhang for Apollo.
Other Stocks to Consider
Here are some other schools that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
DeVry, Inc. (DV - Analyst Report), with Earnings ESP of +4.35% and a Zacks Rank #1 (Strong Buy).
ITT Educational Services Inc. (ESI - Snapshot Report), with Earnings ESP of +5.56% and a Zacks Rank #3 (Hold).