Ex-Credit Suisse Bankers Making Their Mark at Apollo Group

The publicly-traded education stocks have been a battleground the better part of this decade. The group was one of the few to work on the long side of the 2001-'02 bear market, but the shorts eventually had their way as high valuations, shaky management teams and poor student outcomes coalesced into a storm for the stocks.

Picking through the wreckage eventually led Goldman Sachs and SAC Capital to buyout two of the healthier firms left standing, and the granddaddy of them all, Apollo Group (APOL-NASDAQ) has emerged stronger than ever.

Indeed, two investment bankers from Credit Suisse have reinvigorated the management team and the stock. While the new CEO, Chas Edelstein, is best friends with comedian Rob Schneider, the market does not appear to hold it against him, and the earnings announcment was no joke.

Can banker bro's Greg Cappelli and Edelstein keep it going? The quarter they reported was probably the strongest since the company's heydey and a return to form:

This is the second quarter in a row that we have seen an acceleration of our new enrollment growth which we believe is the result of a number of factors, including better quality leads as we gain more visibility into the advertising channels that produce the best converting and persisting leads; two, improvements in our internal lead management systems, including enhancements to our website content that is yielding a greater number of higher converting leads; and, while difficult to confirm, we believe we may be benefiting to some degree from the current state of the economy.

We are particularly pleased with the increase in Bachelor enrollments, which grew 14.3% during the fourth quarter. This is a result of new traditional University of Phoenix Bachelor students as well as students matriculating from our Associates Degree program to our Bachelor’s program. Part of the increase versus last quarter is due to a seasonal trend in our fourth quarter with August being a traditionally larger start period. We are very pleased with these results and while we believe new enrollment growth will continue to be strong, we do not expect to maintain this level of new enrollment growth over the long term.

On the topic of retaining students, during the fourth quarter we again saw improvement and persistence at each degree level. In fact, our persistence rate improved 240 basis points versus a year ago to 80.8%. Similarly to a year ago, there is some seasonality in persistence during our fourth quarter as many students take breaks during the summer months.

Academic quality is key to the success of our business and is the foundation on which we are able to [inaudible] I just discussed. Going forward, you can expect to see us emphasizing our quality in our marketing and on our website to a greater degree. We are proud of the quality of our academics and we believe it is this quality that enables us to create long term value for our stake holders.

With respect to pricing, we implemented selected price increases effective July 1. As expected, we did not realize as much impact on revenue from these increases during the fourth quarter as many students prepay for classes at the old rates in anticipation of increases. A year ago, we raised tuition prices for our Associates programs in early May so the timing of tuition rate increase comparisons isn’t completely apples to apples. We expect to see a positive impact from the price increases beginning in the first quarter and continuing throughout the year. Seeking Alpha

The transcripts of the call would seem to indicate the company is in the best shape in years, generating strong cash flow and leading several analysts to bump up their earnings estimates. And issues over student loan funding have blown over for the time being, a big positive.

ThinkPanmure Research Note
* Management indicated no significant student impact from turmoil in the broader credit markets and expects students to be able to obtain loans as needed. Private loans made up only approximately 3% of revenue.

* We think Apollo Group can continue to grow enrollment in what we believe is a very favorable environment for new student starts while gradually improving operating margins as Selling and Promotional expenses moderate. We continue to rate the shares Buy and our price target is now $72

An updated shareholder list should soon become available, last time around Viking Global Investors showed up as having a prodigious appetite for the shares, buying 10% of the company in the second quarter. Viking is in reasonably good shape against its peers, and the stock is safely in strong hands, unlike the commodity stocks were 6 months ago.  And if you are don’t want to piggyback Viking maybe you should consider piggybacking TimesSquare Capital Management ...who were also aggressive buyers in the spring.

You can quibble with the valuation and sector rotation issues, while waiting for the stock to consolidate, but if the stock lives up to its billing it should offer a haven from the winds that have been buffetting nearly every publicly traded stock over the past month. 
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I got the 70 handle I was hoping for, although it did not last long this morning.
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Apollo Group, Inc. F4Q 2008 (Qtr End 8/31/2008) Earnings Call Transcript
Seeking Alpha

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Rob Schneider, Tampa Bay Rays Fan, and BFF of APOL’s CEO, will work for food.

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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. Position in APOL

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