Apollo Group (APOL) Analysis

Apollo Group focuses on providing education to working adults. From the 10-Q of APOL, Apollo Group, Inc. (“Apollo” or the “Company”), through its wholly-owned subsidiaries: The University of Phoenix, Inc. (“University of Phoenix”), Institute for Professional Development (“IPD”), The College for Financial Planning Institutes Corporation (the “College”), and Western International University, Inc. (“WIU”), has been providing higher education to working adults for almost 30 years.

Recently, APOL was in the Standards and Poors "Warren Buffett" screen portfolio. According to Standards & Poors, this is one of the stocks that is expected to do well in this year. Let us first look at the publicly filed statements to understand APOL business and then we will look at the balance sheets.

The APOL business is in the education industry and especially working adults section. Working adults are a significant and growing component of the post-secondary education market. The market for adult education should continue to increase as working adults seek additional education and training to update and improve their skills, to enhance their earnings potential, and to keep pace with the rapidly expanding, knowledge-based economy.

The opportunities for APOL are as follows:

University of Phoenix expansion both locally and internationally. The US and other advanced countries are increasingly focussing on knowledge based economy and career change. The plan by APOL group to expand in this space should pay well. This should work well as University of Phoenix accomodates the need of working people well.

Expand Student Base in Associates Degree Programs. The plan is for this to be expanded through the Axia college. Axia College has been specifically designed to meet the special needs of low-credit working adults.

Approximately 93% of Apollo revenue is expected to accrue through tuition revenue and University of Phoenix provides 83% of the revenue. The yearly growth rate is approximately 10% in operating income. However, the earnings per share increased by 24% year over year. The company is aggressively buying back shares which is helping boost the earnings per share. The number of outstanding shares declined by approximately 5% year over year.

The Apol stock has a P/E of 23 - very close to its EPS growth. While the stock is not cheap, this stock is setup to capitalize on the general trends in the United States. More people will need to retrain in north america and Apollo is all set to capitalize on this trend. Not surprisingly, the EPS is expected to grow at around 20% for the next couple of years. The operating earning margin has remained steady around 20% and Apollo has the pricing power to raise its tuition to keep up the margins. The competition to Apollo is primarily from other well established universities but Apollo group is currently doing a better job in addressing the need of rank and file Americans.