We have maintained our long-term ‘Neutral’ recommendation on Apollo Group Inc. (APOL) with a target price of $42.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock.
Phoenix, Arizona based Apollo Group Inc. is a leading private education service provider in the U.S. and has been in the education business for more than 35 years. Apollo Group offers innovative and distinctive educational programs and services for the undergraduate, masters and doctoral level, both through online and on-campus.
These programs are offered through the company’s wholly-owned subsidiaries: The University of Phoenix Inc., Institute of Professional Development (IPD), The College for Financial Planning Institutes Corporation (CFFP) and Meritus University Inc. These provide a hard-to-replicate competitive advantage to the company and bolster its lead position in the market. Moreover, Apollo Group has formed a joint venture with The Carlyle Group, called Apollo Global Inc., to pursue investments primarily in the international education services industry.
Moreover, in an effort to enhance its revenue streams, the company went into a string of strategic acquisitions in the last three-four years including BPP Holdings. Apart from this, Apollo Group is strongly capitalizing opportunities in the emerging markets and hence, has already acquired a university each in Mexico and Chile. These acquisitions are aimed at boosting the top-line potential of the company in the coming years.
Additionally, post-secondary enrollments are expected to grow further due to population growth, a shift in the U.S. economy from manufacturing to services and increasing wage gap between people with post-secondary degrees and those with only a high school diploma. Enrollments in online programs are increasing faster than campus-based programs, as students look to balance school with work and personal obligations. With 102 campuses and 154 learning centers in the U.S., Apollo is well positioned to continue to grow both its online and campus operations.
Besides, the company at the end of the first quarter of fiscal 2011 had a strong balance sheet with cash and cash equivalents of $1040.5 million and long-term debt of just $181.4 million, which offers financial flexibility for future growth.
However, Apollo Group derives a significant portion of its revenues from federal student’s financial aid programs, referred to as Title IV programs, which requires official approval from an accrediting body recognized by the U.S. Department of Education. Apollo Group’s growth potential will be adversely affected if it fails to consistently meet the stringent criteria used by the authorities and consequently lose accreditation.
Apart from this, Apollo Group faces intense competition from other companies offering post-secondary education, such as DeVry Inc. (DV), Strayer Education Inc. (STRA) and Career Education Corporation (CECO). In addition, the company also competes with community colleges and traditional universities. Consequently, risk associated with operating in such a competitive environment may undermine the company’s future operating performance.
APOLLO GROUP (APOL): Free Stock Analysis Report
CAREER EDU CORP (CECO): Free Stock Analysis Report
DEVRY INC (DV): Free Stock Analysis Report
STRAYER EDUC (STRA): Free Stock Analysis Report
Zacks Investment Research
