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DeVry And Apollo Struggling, With A Few Bright Spots

Posted on Thursday, Dec 1st 2011

According to research by Ambient Insight, the global market for online education at schools and businesses is projected to grow from $32.1 billion in 2010 to $50 billion by 2015. Despite rosy projections, tighter government regulations have slowed new student registrations at many for-profit companies. The government restrictions aim to control some of the ways in which for-profit educators have gotten students to sign up for courses. For-profit courses can be very expensive, and some have failed to deliver on their promise of better employment opportunities. Further, student loan default rates are an estimated three times higher for for-profit school loans compared with loans taken by students enrolling in nonprofit schools.

DeVry’s Financials
DeVry University (NYES:DV) is not faring any better than its peers. Q1 revenues fell 0.5% over the year to $519 million and missed the market’s target of $529.3 million. EPS of $0.83 was also short of the market’s targeted $0.96.

Total student enrollment fell 0.9% over the year to more than 122,760. But the company is seeing growth in the international markets. DeVry’s Medical international students grew 6.3% over the year to over 6,080 and new students in the segment grew 23% over the year. DeVry Brasil also saw impressive 29% growth in new students to end the quarter with almost 14,100 students, representing 18% growth over the year.

DeVry’s Strategy
DeVry management has laid down several areas of focus areas for the year to help drive growth. First, they are managing costs and deferring spending where possible. Second, they are increasing focus on awareness building through refining their communications to optimize spending and better connect with potential students. Third, they are enhancing the student recruitment process to help deliver a more efficient response to potential students, and they are also working on helping students find the required financing for their degree. Fourth, they are investing in new programs and new locations in high-demand areas. They are targeting opening nine to ten new campuses in fiscal year 2012 across DeVry University, Chamberlain, Carrington, and DeVry Brasil.

DeVry’s stock is trading at $34.51 with a market capitalization of $2.32 billion. It touched a 52-week high of $66.85 in July of this year.

Apollo Group’s Financials
Apollo Group’s (NASDAQ:APOL) Q4 revenues fell 11% over the year to $1.12 billion, still marginally ahead of the market’s projected revenues of $1.10 billion. EPS of $1.02 was also ahead of the Street’s targeted EPS of $0.92.

Enrollments continued to remain a challenge as University of Phoenix degreed enrollment fell 19.1% to 380,800, owning primarily to a 33.5% reduction in new degreed enrollment.

Apollo repurchased 7.7 million of its common stock at a purchase price of $46.16 for a total spending of $357.0 million during the quarter.

They ended the year with revenues falling 4% over the year to $4.7 billion. Earnings of $4.94 per share also fell over previous year’s EPS of $5.35.

For the current year, Apollo expects to post revenues of $4.1 billion-$4.3 billion with earnings of $655 million-$780 million. The market was expecting revenues of $4.21 billion for the year.

Apollo’s Student Retention
Apollo attributes the decline in new enrollments to the implementation of their University orientation program. Started last year, the three-week mandatory orientation program helps students to ascertain their ability to cope with the course. Apollo introduced a new metric, average credits earned per students or ACEPS, to track new enrollment retention rate. The 26-week ACEPS metric measures the average number of credits earned by newly enrolled undergraduate students over their first 26 weeks of attendance. The metric is reported two quarters in arrears. Their latest score for the February ended quarter reported growth of 12% over the year in ACEPS driven by the success of the orientation program. Apollo is using retention rate to manage the gainful employment regulations set by the government.

Apollo believes that the worst may be over as they are seeing positive trends in new enrollment. They expect new enrollment to grow in the current quarter and to remain positive for the entire year.

The stock is trading at $48.48 with a market capitalization of $6.33 billion. It touched a 52-week high of $54.23 in July of this year.

DeVry believes that the depressed economy is taking a toll on student enrollment in the industry. As a “psychological effect of the economy,” potential students are putting off enrollment because of the increased risk-averseness and cautiousness to committing funds.

I believe the players should be looking at international markets to compensate for the weak economic conditions in the U.S. market. International revenues for Apollo and DeVry are relatively small at 6.8% and 12.3%, respectively. Apollo treats international operations as part of the Apollo Global growth plan and has not seen much activity over the year. DeVry has fared marginally better through their earlier acquisition of American University of the Caribbean (AUC), which helped it to expand in the Caribbean. However, both Apollo and DeVry need to increase the pace of growth and should be looking at markets such as India, where the government plans to increase higher education student enrollment to 4o million by 2020 from 16 million at present.

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