Apollo Group: Not so hot for teacher
Today's Financial News - Posted April 1, 2009
The markets were expecting too much and investors paid the price. The news from Apollo (NASDAQ:APOL) is good, yet its shareholders are taking a beating.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Is it a sign of things to come? As unemployment levels surged, the belief that many of the newly jobless would return to school rose as well. The sentiment helped shares of Apollo Group (NASDAQ:APOL) remain ahead of the averages.
But now that the company’s latest quarterly results have been released, investors are starting to wonder if they may have been overzealous. It will likely be a common theme over the next few weeks.
Even though the company swung to a strong quarterly profit and exhibited strong growth, shares of Apollo, the firm that operates University of Phoenix, are down by double-digit proportions. There are several factors weighing on investor’s minds.
First up is the 50-basis point rise in bad-debt expenses. As students lose their jobs or as employers back out of tuition reimbursements, students are forced to leave the school. Many of them are leaving without paying their bills. This will be a pertinent theme going forward, but it should have little to no material impact on the company’s financial health.
Next, investors are worried about some shuffling in the executive suites. The company’s CFO, Joseph D’Amico, was removed from his position and given a new perch as the COO, while Brian Swartz takes over the top financial spot.
Not a big deal, but combine it with the news of some “accounting” adjustments due to a securities class-action lawsuit and it begins to raise concerns. Nonetheless, the company tells us not to be worried.
Smart profits
The good news is the company booked over $875 million worth of revenues during the second quarter, a 26% jump from the corresponding period last year. Just as good, enrollment at University of Phoenix jumped by 20%. The school now has nearly 400,000 degree-seeking students.
Digging deeper into the company’s financial health, most indicators were positive. Margins are expanding. Variable costs are rising slower than enrollment revenues. And marketing campaigns are showing they will help long-term sustainability of last quarter’s figures.
Share price is down today as investors were hoping for much more. With few other companies with outlooks as bright as Apollo’s, an abundance of investor cash flowed into the firm over the past few months. Today’s report shows many of those investors were expecting too much and overpaid for their shares.
This is creating a potential investing opportunity. Wait until the end of the week (after Friday’s unemployment figures) and start thinking about grabbing a few shares on the cheap. The growth reported over the last quarter could create the momentum Apollo needs to get its share price moving in a positive direction for many quarters to come.
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