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Here's Why You Should Hold on to American Public (APEI) Now

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American Public Education, Inc. (APEI - Free Report) is benefiting from affordable tuitions, online programs for military personnel, and strategic initiatives to improve enrollment trends and student persistence. Also, strong digital marketing campaigns, and focus on introducing new courses and programs with various schedule options are adding to the bliss.

Recently, the company reported better-than-expected third-quarter 2019 results, backed by the above-mentioned tailwinds. Notably, shares of the company grew impressively post the earnings release.

However, the company has been witnessing volatility and softness in enrollment from students using Federal Student Aid (FSA), military tuition assistance (TA) and veterans benefits (VA), along with stringent regulation.

Let’s delve into the factors that substantiate its Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strategies to Drive Growth

American Public — which share space with Career Education Corporation CECO, New Oriental Education & Technology Group Inc. EDU and Lincoln Educational Services Corporation LINC in the Zacks Schools industry — has undertaken several initiatives to improve enrollment trends and student consistency. In order to drive students’ persistence rate, the company is focused on improving the quality of student mix, release new tools for students, and introduce other initiatives that will increase students’ engagement and classroom interactivity.

To that end, it expanded the use of ClearPath by Fidelis — American Public’s advising and mentoring platform. It also revised its application and assessment processes to effectively enroll more students with greater college readiness. Its competency-based programs — APUS Momentum — are also gaining traction.

Other important initiatives lined up for the same purpose are APU mobile app and Civitas. The company believes that improved students’ persistence will lead to enhanced online learning experience, increased graduation rates and higher referral rates.

Markedly, American Public came up with certain changes in the curriculum at Hondros College of Nursing (HCN) to boost student enrollment. Other than Medical Laboratory Technician or MLT Program, it has started building a strong pipeline of Practical Nursing, or PN, students, which serves as the primary theater to Hondros Associate Degree in Nursing, or AND, program.

The company aims at strengthening digital marketing campaigns to leverage its relationship with military, public service and other high-value student populations.

The company is on an impressive growth trajectory, as is evident from the recent 10.2% upward revision in earnings estimates for the current year over the past seven days. Additionally, its superior return on equity (ROE) supports growth potential. The company’s ROE of 6.7% compares favorably with the industry average of 6.4%, implying that it is efficient in using its shareholders’ funds.

Volatile Enrollment Poses Concern

American Public is struggling to generate higher year-over-year revenues over the last five quarters as a result of declining enrollment trends across the board. Specially, enrollment from students using FSA, TA and VA is highly volatile, and subject to stringent government regulations and other regulatory actions.

Enrollment of students using FSA has been declining ever since the company shifted focus on improving the quality and mix of students. The downside in enrollment of students using FSA was caused by the implementation of new admission processes, intense competition in the markets served and adjustments in marketing activities. In the first nine months of 2019, net course registrations at APUS declined 1.7% year over year, partly due to the temporary exhaustion of Navy TA program funds.

Student enrollment at APUS and HCN also declined 2% and 22.6%, respectively, in the said period. In fact, due to lackluster enrollment at HCN, the company ceased the enrollment of new students and began an orderly teach-out of the MLT Program.

Due to the above-mentioned headwinds, it expects net course registrations at APUS between a 2% decrease and 2% increase year over year. Registrations by new students are anticipated between a 1% decline and 3% growth from the year-ago quarter.

At HCN, total and new student enrollment is likely to decline 20-24% from the year-ago quarter. Moreover, it expects total revenues to decline 3-7% from the prior-year reported figure. The bottom line is anticipated within 35-40 cents per share, indicating a significant decline from the year-ago reported figure of 55 cents.

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