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Apollo Takes People Back To School Amidst Recession

Posted on Friday, Apr 10th 2009

The educational program provider Apollo Group (NASDAQ:APOL), which owns the for-profit University of Phoenix, has been exceeding market expectations on a regular basis even in these depressed conditions, a testament to the company’s good execution capabilities and perhaps the popularity of going back to school as layoffs continue.

Revenues for the quarter stood at $876 million, recording impressive 26% growth over the year. The company saw significant 20.4% growth in degree enrollments to nearly 400,000 for the quarter. The Street was looking for revenues of $865 million.

EPS for the quarter stood at $0.77, compared to the Street’s expectations of $0.65, and grew 18% over the year.

Apollo is still grappling with succession planning issues and of late has done a lot of management shuffling. After appointing Charles “Chas” B. Edelstein, an ex-Credit Suisse MD as their CEO, they recently named CFO Joseph L. D’Amico as their new COO.

Apollo also don’t seem to be making much headway in the international and online market space, as is evident from their limited investments in technology or program development space, and are instead focusing on brand building. The company’s international expansion is also still limited to the Latin American region through the previous year’s acquisition of 65% stake in the University of Latino America, an accredited private university in Mexico City, for $47 million. They also acquired UNIACC, a private arts and communication university based in Santiago, Chile, for $44 million. However, the company has yet to explore the other emerging markets of India and China.

There are other external factors likely to trouble Apollo. At the end of last year, the Federal Reserve Bank announced that it would lend up to $200 billion to financial institutions that hold securities backed by student loans, auto loans and credit card debt. These loans will be backed with $20 billion from the $700 billion financial rescue fund approved by Congress last year and will allow institutions to increase lending and students to have access to lower-cost financing. While the students were happy, most colleges are not as the funds so received are rather unreliable. In fact, Apollo’s bad debt expenses increased to $36 million in the quarter, from $26.6 million at the end of 2Q08. 

Even though it posted some impressive metrics, all this still makes me wary of the stock, and I would wait and watch before investing in it again. Apollo is currently trading at $61.51 with a market capitalization of nearly $9.90 billion.

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