The Next Big Short: Part 3 – The Apollo Group Announces Third Quarter Earnings
The Apollo Group, which is the parent of the for-profit internet college the University of Phoenix, announced third quarter earnings this morning. Earnings per share increased 34% on a year-to-year comparison. No surprise here, considering its student body is the largest beneficiary of federal student aid (to the tune of 1.8 billion last year).
However, the company also told analysts that it expects enrollment growth to decelerate, noting the regulatory/legislative environment. They also noted that the incentive compensation paid to its recruiters (brokers) is being restricted, because of regulatory pressure. And here’s the big one…the Apollo Group disclosed that many of its programs would fail to comply with the Department of Education’s proposed gainful employment rules. The gainful employment proposal would cut federal aid to schools whose graduates would spend more than 8% of their starting salary on loan payments. If enacted, Apollo Group’s operating costs could significantly rise and enrollment could be reduced.
The horse is out of the barn, and well down the road. So naturally the analyst’s are doing their best moonwalk impressions. Barrington reduced its 12 month target for Apollo Group from $75 to $65, and FBR lowered their target price from $63 to $49.
Hey guys, Apollo Group is trading at $42 and change this morning, and Senator Harkin, Chairman of the Senate Committee on Health, Education, Labor and Pensions, is on the warpath. The for-profit higher education industry will soon be facing new and stringent standards that many schools will fail to comply with. Do your clients a favor. Take another look at your numbers. They’re too high.
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