American Public Beats Estimate

American Public Education Inc. (APEI">APEI), an online provider of higher education to military and public service communities, recently delivered better-than-expected second-quarter 2011 results on the heels of robust student enrollment. The quarterly earnings of 49 cents a share beat the Zacks Consensus Estimate of 45 cents, and rose approximately 32% from 37 cents in the prior-year quarter.

Management now projects third-quarter 2011 earnings between 41 cents and 43 cents a share that dovetails with the current Zacks Consensus Estimate of 42 cents.

Total revenue came in at $60.8 million compared with the Zacks Consensus Estimate of $60 million, and soared 31% from the prior-year quarter. American Public Education forecast revenue growth of approximately 29% for third-quarter 2011.

Total net course registration surged 28% to approximately 77,900, and net course registrations from new students grew 39% to approximately 18,900. American Public stated that about 96,800 students were enrolled in the American Public University System as of June 30, 2011, reflecting an increase of 34%.

Management now expects third-quarter 2011 net course registrations to jump approximately 28%, and net course registrations from new students to rise approximately 35%.

American Public Education has predicted a growth in student enrollment for the third quarter, despite the regulation proposed by the Department of Education that may weigh upon students’ enrollment and the company’s profits.

The Department of Education cited that an educational program could qualify for Title IV funds only if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The company derives a major portion of its revenues from federal student financial aid programs, the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.

A for-profit education company, Capella Education Company (CPLA">CPLA) cautioned that new enrollment in third-quarter 2011 is expected to tumble by approximately 30%. To counter sluggishness in students’ enrollment, education companies are restructuring their cost base.

Going back to American Public Education, operating income for the quarter under review surged 27% to $14.9 million, but operating margin contracted 90 basis points to 24.5%.

American Public Education ended the quarter with cash and cash equivalents of $94.5 million, and no long-term debt. For the first six months ended June 30, 2011, capital expenditures were $6.8 million and cash from operations was $25.7 million.

Currently, we have a long-term “Neutral” rating on the stock. Moreover, American Public, which competes with Apollo Group Inc. (APOL">APOL), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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