American Public Beats Estimate

American Public Education Inc. (APEI - Analyst Report), an online provider of higher education to military and public service communities, recently delivered better-than-expected third-quarter 2011 results on the heels of robust student enrollments. The quarterly earnings of 60 cents a share beat the Zacks Consensus Estimate of 42 cents, and rose twofold from 30 cents earned in the prior-year quarter.

Management now projects fourth-quarter 2011 earnings between 58 cents and 60 cents a share that dovetails with the Zacks Consensus Estimate of 59 cents.

Total revenue of $65.3 million, surged 35% from the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $63 million. American Public Education forecast a revenue growth of approximately 29% for the fourth quarter of 2011.

Total net course registration soared 32% to approximately 87,300, and net course registrations from new students grew 53% to approximately 23,900. American Public stated that about 105,700 students were enrolled in the American Public University System as of September 30, 2011, reflecting an increase of 36%.

Management now expects fourth-quarter 2011 net course registrations to soar approximately 28%, and net course registrations from new students to rise approximately 29%.

American Public Education has predicted growth in student enrollments for the fourth quarter, despite the regulation proposed by the Department of Education that may weigh upon students’ enrollments 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.

Another for-profit education company, Capella Education Company (CPLA - Analyst Report) cautioned that new enrollment in fourth-quarter 2011 is expected to tumble by approximately 10%. To counter sluggishness in students’ enrollment, education companies are resorting to restructuring their cost base.

Coming back to American Public Education, operating income for the quarter under review surged 61% to $15 million, whereas operating margin expanded 370 basis points to 23%.

American Public Education ended the quarter with cash and cash equivalents of $107.3 million and no long-term debt. For the first nine months ended September 30, 2011, cash from operations was $47.5 million and capital expenditures were $13.8 million.

American Public Education’s focus on serving military and public service personnel, high student referral rates and accreditation enable it to consistently deliver impressive top and bottom lines. The company’s sustained effort to expand educational programs helps boost enrollments.

The company is now primarily focusing on increasing net registrations from civilian students, to safeguard itself from the adverse impact of a fall in military registrations due to increased military operations. Further, American Public’s debt-free balance sheet and healthy cash reserves augur well for future operating performance.

Currently, we have a long-term ‘Outperform’ rating on the stock. However, American Public, which competes with Apollo Group Inc. (APOL - Analyst Report), holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

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