American Public Education (APEI) has carved a unique niche for itself in the online post secondary education industry by focusing on recruits serving the U.S. military as well as federal, national, and local law enforcement 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 20% in first-quarter 2011.
The company’s sustained effort to expand educational programs helps it to boost enrollments. American Public also pointed out that the enrollment of military students has been showing signs of improvement, which had earlier dropped due to increased military operations.
American Public informed that net course registrations rose 27% and net course registrations from new students climbed 20% in fourth-quarter 2010. Management forecasted net course registrations to rise approximately 25%, and net course registrations from new students to jump approximately 27% in first-quarter 2011.
We observe that American Public’s projection of growth in student enrollments for the first-quarter 2011 comes despite the regulation proposed by the Department of Education that may weigh upon students’ enrollments and the company’s profits.
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 institute, Capella Education Company (CPLA) cautioned that new enrollment in first-quarter 2011 could tumble by 35%. To counter sluggishness in students’ enrollment education companies are re-working their cost base.
Currently, we have a long-term ‘Neutral’ rating on the stock. However, American Public holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
AMER PUB EDUCAT (APEI): Free Stock Analysis Report
CAPELLA EDUCATN (CPLA): Free Stock Analysis Report
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