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American Public Education (APEI - Analyst Report) recently announced a new share repurchase program. The board of directors of the online education provider has authorized a purchase of the company’s common stock worth upto $20 million. The company’s shares outstanding stood at approximately 18.2 million as of March 31, 2012.

The students enrolled in American Public Education courses primarily serve the military and public service communities.They mainly finance their education through tuition assistance programs of the US Armed Forces (DoD tuition assistance programs), education benefits administered by the Department of Veterans Affairs and federal student financial programs referred to as Title IV programs.

American Public Education announced its first quarter results last week. The company recorded earnings of 50 cents per share in the first quarter of 2012, beating the Zacks Consensus Estimate by 2 cents and the prior-year figure by 7 cents due to top-line growth. Total revenue of $75.7 million was up 29% from the prior-year quarter, slightly above management’s expectation of growth of approximately 27% for the said quarter. Revenues also edged past the Zacks Consensus Estimate of $75.0 million. The top-line growth was driven by brisk student enrollments, particularly from civilian, military, and veteran students.

However, the company provided a gloomy outlook for the second quarter with new enrollment growth projections representing a sharp decline from first quarter levels. Management commented that steps taken to reduce student abuse of Title IV funds could result in lower new student enrollments in the second quarter.

Our Recommendation

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

We believe American Public Education’s affordable tuition costs and its shifting of student focus to the civilian market bode well for long-term growth. However, the focus on civilian growth as well as initiatives to curb fund abuse will be a headwind for margins. Moreover, uncertain military enrollment growth due to possible changes to the DoD tuition assistance programs also concerns us. We therefore prefer to remain on the sidelines and maintain a Neutral rating.

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