American Public Education Inc. (APEI - Analyst Report) is well positioned in the online post secondary education industry, thanks to its focus on recruits serving the U.S. military as well as public service personnel. Moreover, the company’s part-time programs are well suited to irregular and extended work schedules of these personnel, who travel and relocate frequently and have limited financial resources. This provides a significant upside potential for the company.
American Public has witnessed an impressive revenue growth over the last four fiscal years. During 2007-2010, revenue surged from $69.1 million to $198.2 million recording a compound annual growth rate of 42%, driven by high student satisfaction and referral rates, regional accreditation and access to Title IV programs. Furthermore, management expects revenue to rise approximately 29% in the fourth quarter of 2011. During the third quarter, American Public witnessed a 35% jump in the top line.
The company’s sustained effort to expand educational programs helps it to boost enrollments. Net course registrations rose 32% and net course registrations from new students climbed 53% in the third quarter of 2011. Management now expects net course registrations to rise approximately 28%, and net course registrations from new students to jump approximately 29% in the fourth quarter.
American Public has predicted growth in student enrollments for the fourth quarter, despite the regulation proposed by the Department of Education. However, we observe that management’s fourth quarter forecast for the rate of growth in enrollment is lower than the third quarter. The company now primarily focuses on increasing net registrations from civilian students, to safeguard itself from the adverse impact of a fall in military registrations due to increased military operations.
The Department of Education proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The company derives a major portion of its revenue from federal student financial aid programs, the Title IV programs. The education institutions are also under the scanner due to the rise in the default rate of student loans.
Another for-profit education company, Capella Education Company (CPLA - Analyst Report) cautioned that new enrollment in fourth-quarter 2011 is expected to fall by approximately 10%. To counter sluggishness in students’ enrollment, education companies are resorting to restructuring their cost base.
Further, American Public has a healthy debt-free balance sheet, with cash and cash equivalents of $107.3 million at the end of the third quarter. This offers the company financial flexibility to drive future growth.
Currently, we have a long-term Neutral recommendation on the stock. Moreover, American Public, which competes with Apollo Group Inc. (, holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.