On January 12, Zacks Investment Research upgraded American Public Education, Inc. ( APEI - Analyst Report ) to a Zacks Rank #1 (Strong Buy) following back-to-back solid earnings results in the second and third quarters of 2012.

Why the Upgrade?

Third quarter 2012 earnings of 60 cents per share beat both the Zacks Consensus Estimate and prior-year quarter’s adjusted earnings of 50 cents by 20%. Cost savings, banking on the company’s strategic initiatives, made up for the modest revenue growth and led to the earnings beat. Total revenue increased 18% year on year to $77.1 million. The rate of increase was within management’s expectation of growth in the range of 16% to 19%. Revenues slivered past the Zacks Consensus Estimate of $77.0 million. Total and new enrollment growth was also within management expectations.

American Public has been consistently delivering positive growth in revenues, earnings and enrollments. It has delivered a positive earnings surprise in the past four quarters with an average of 13.4%. This is impressive, as on the other hand most of its peers like Apollo Group ( APOL - Analyst Report ) have been witnessing consistent enrollment declines.

We believe that the company’s affordable tuition costs and its shifting of student focus to the civilian market are boosting enrollment growth. Moreover, its corporate and community college partnerships provide the necessary diversification from volatile enrollment trends of active duty military students. The company is also improving its international opportunities. In addition, the company’s fraud prevention initiatives to improve student quality augur well for better student outcome and retention.