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American Public Education, Inc.’s (APEI - Analyst Report) first quarter 2013 earnings of 63 cents per share beat the Zacks Consensus Estimates of 57 cents by 10.5%.  Earnings exceeded management’s expected range of 55 cents to 58 cents a share, representing year-over-year growth of 10%–16%. Earnings increased 26% year over year on the back of top-line growth.

Investments in information technology infrastructure to support a larger and more diverse student population, automation of Title IV processes, and the ePress initiative are manifesting favorable results. Further, American Public’s fraud prevention initiatives have been effective in reducing enrollment of students who abuse funds, thereby reducing bad debt expenses.

Total revenue grew 11% year on year to $83.8 million, within the company’s expected range of approximately 9% to 13% growth. However, revenues slightly missed the Zacks Consensus Estimate of $84.0 million by 0.23%. The year-over-year top-line growth was driven by brisk student enrollments in the quarter, particularly civilian, military and veteran students.

Operating income for the quarter increased 22% to $18.2 million. Selling and promotional expenses increased 28.6% from the prior-year period to $16.5 million due to American Public’s increased marketing efforts. As a percentage of revenues, selling and promotional expenses increased 70 basis points in the quarter.

Enrollment Growth

Total enrollment increased 9% year over year to 109,700, toward the higher end of the company’s guidance of 7% – 10% increase. New student enrollments declined 7% to 19,100, in line with the high end of management guided range of 5% to 7% decline.

Management believes that the prior-year quarters may have included enrollment of students who abused student aid. The company’s fraud prevention initiatives are reducing enrollment of students who abuse funds, which explains the decline in new student starts for the quarter.

Second-Quarter 2013 Outlook

For the second quarter of 2013, American Public expects revenue growth in the range of approximately 10% to 13%. Management also expects second quarter 2013 enrollments to increase between 9% and 12% over the prior-year period. New student enrollments are expected to decline in the range of 10% to 14%. Management further projects second quarter 2013 earnings between 53 cents and 58 cents a share, which includes a charge of 2 -3 cents related to legal and financial due diligence expenses.

American Public carries a Zacks Rank #3 (Hold).  

Stocks that are currently better positioned and therefore worth considering include WebMD Health Corp. (WBMD - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy), and Giant Interactive Group, Inc. and Perion Network Ltd (PERI) carrying a Zacks Rank #2 (Buy).

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