APEI Beats, First-Quarter View Weak

American Public Education Inc. (APEI - Analyst Report), an online provider of higher education to military and public service communities, recorded earnings of 71 cents per share, beating the Zacks Consensus Estimate by 11 cents. Earnings were also above the prior-year figure of 52 cents, and the guidance of 58 cents to 60 cents, due to robust top-line growth.

Total revenue of $75.7 million surged 34% from the prior-year quarter, and also came in ahead of the Zacks Consensus Estimate of $73 million. The top-line growth also beat management’s guidance of 29% growth on the heels of robust student enrollments.

Total net course registration soared 36% to approximately 95,400, and net course registrations from new students grew 53% to approximately 24,600. American Public stated that about 110,000 students were enrolled in the American Public University System as of December 31, 2011, reflecting an increase of 31%. Operating income for the quarter rose 25% to $19.8 million.

Annual Results

For the full year 2011, American Public Education earned (excluding special items) $2.23 per share, 13 cents above the Zacks Consensus Estimate and a whooping 64 cents above the 2010 earnings of $1.59 per share. In 2011, revenues climbed 31% to $260.4 million, slightly above the Zacks Consensus Estimate of $260 million.

Walmart Link

American Public Education is an education partner of Wal-Mart Stores Inc. (WMT - Analyst Report). Walmart has allowed family members of eligible Walmart associates to access its Lifelong Learning Program. This may boost enrollments for American Public Education in the long term.

First-Quarter 2012 Outlook

American Public Education introduced its financial guidance for the first quarter of 2012. The company is expecting a revenue growth of approximately 27% for the said quarter. Management now expects first quarter 2012 net course registrations to rise between approximately 20% and 22% over the prior-year period. Net course registrations from new students are expected to rise approximately 14% year over year.

Management further projects first quarter 2012 earnings between 45 cents and 49 cents a share. The Zacks Consensus Estimate is 48 cents per share.

Though the fourth quarter results are impressive, we believe the overall outlook for the first quarter of 2012 is weak. We believe the overtly cautious outlook may be due to the recent 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 educational institutions are also under the scanner due to the rise in the default rate of student loans.

Our Recommendation

We currently have a Neutral recommendation on American Public Education. The stock carries a Zacks #3 Rank (short-term ‘Hold’ rating).

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.