Apollo Group Goes Global

Is Wall Street underestimating Apollo Group (APOL-NASDAQ)? With their management team in transition, and an active search underway for a new CEO, the Street's caution is understandable. But, at least today, they are getting a boost from a solid earnings report.

But the company has not been standing still. They repurchased $454 million worth of stock in their fiscal third quarter, one of the larger buybacks I have witnessed in some time, at least as a percentage of their enterprise value. And they are moving forward with growth plans that should see them plant a flag in the fastest growing markets around the world. Their joint venture with the Carlyle Group has gotten off to a slow start, but is beginning to take shape:

During the third quarter Apollo Global closed its first transaction, UNIACC, petroleum based arts and communications university. The purchase price was about $44 million that was composed of cash and assumed debt plus [inaudible] to be paid in four years. Apollo Group’s cash portion was $19 million with Carlisle providing the additional 20%. The remaining portion of the purchase price represented assumed debt. For the quarter we reported Apollo Global revenue of about $4 million and Apollo Global has a current revenue run rate of about $35-40 million. We are pleased with our acquisition and particularly the management team that built this tremendous school. We are working diligently to build the business in Chile and we are finding additional opportunities as well.

Apollo Global continues to search for opportunities around the world that fit our value criteria and I believe we have a solid and growing pipeline in place. We hope to be able to discuss some of these opportunities with you soon. Conference Call Transcript

Wild ride over the past year

_____________________________________________________________

And while you can’t argue with 14% revenue growth, a major improvement in bad debt expense and gross margins helped the bottom line beat was well. But the focus of the Street might continue to be on the company’s acquisition strategy.

It would appear they are exhibiting some financial discipline; the rumor mill had them making a $1.6 billion offer for a Brazilian school, but stood firm after it was rejected. But the share buyback, at an average price of $46, looks to pretty shrewd today.

But according to Greg Cappelli, they are actively pursuing deals, and perhaps an accretive acquisition looms in their future:

We are also willing to look at small and large transactions. However, you are right we do measure returns very closely here and we understand that the larger you get the more risk there is. That risk criteria has to be built into the proposed return that has to pass our investment policy committee as well as Carlyle’s. I suspect you’ll see speculation from time to time around various areas of the world. We’re not always sure where it comes from but we are focused on one, making sure strategically it makes sense and two, the valuation is something that will create long-term value including the risks that are involved in making that acquisition or a partnership for that matter.

The Street loved this stock, and then really hated it. Concerns over student lending now are weighing in on the sector, but if the clouds part the group should provide a hiding place for vanilla managers as education bulls are once again able to hang their hat on the traditional counter-cyclical themes the sector has offered.

Apollo Group, Inc. F3Q08 (Quarter End 05/31/08) Earnings Call Transcript
Seeking Alpha
-------------------------------------------------------------------------------------------------------------
The content contained represent 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. No Position

Comments:

<< Back to main