On January 10, we maintained an Outperform recommendation on American Public Education, Inc. (APEI - Analyst Report) as it has delivered positive growth in revenues, earnings and enrollments consistently in sharp contrast to weak results by most peers. The stock also carries a Zacks Rank #1(short term Strong Buy).
Why the Reiteration?
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.
American Public reported its third quarter results in early November. 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%. Earnings were also significantly above the guidance range. Cost savings banking on the company’s strategic initiatives made up for the modest revenue growth, leading to the earnings beat.
Total revenues grew 18% year on year to $77.1 million. The rate of increase was within management’s expectation of a 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 Education is gradually shifting focus from military personnel to public service segments of the civilian market. Though the shift in student mix to civilians would result in higher selling and promotional costs and bad debts, it bodes well for the company’s long-term growth. These students generally take more classes than military students and show higher retention rates. We believe that the company’s affordable tuition costs and its shifting of student focus to the civilian market are boosting enrollment growth.
Moreover, American Public is also entering into corporate relationships, community college partnerships and international opportunities to give it the necessary diversification from volatile enrollment trends of active duty military students. In addition, the company’s fraud prevention initiatives to improve student quality augur well for better student outcome and retention.