By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 12/31/09 Sign up for free Cabot Wealth Advisory e-newsletter
Apollo Group (APOL) is the largest provider of higher education programs for adults primarily through the company’s University of Phoenix campuses and online programs. APOL offers associate, bachelor’s and master’s degree programs and serves about 443,000 students in 40 states and several foreign countries. Baby Boomers, Apollo’s most important student group, are getting older, so the company will focus on attracting younger students by providing more associate degree programs.
Higher unemployment and increased federal funding for education loans have spurred fast revenue and earnings growth during the past year. We expect unemployed adults to seek higher education to improve their careers. After the last recession ended, Apollo’s earnings skyrocketed 40% per year during the following four years. We expect swift earnings per share growth during the next three to four years as well.
Sales increased 27% during the 12 months ended August 31 compared to a year ago. Earnings per share jumped 30% during the same period. We expect sales growth of 20% and EPS growth of 30% during the next 12 months. Apollo is acquiring companies in faster growing countries, which will provide new growth opportunities and enable the company to boost sales and earnings further.
In October 2009, the Securities and Exchange Commission launched an informal inquiry into Apollo’s revenue recognition practices. The scope of the inquiry is unknown, but management is cooperating fully with the inquiry. We believe the outcome will not have a material effect on Apollo’s past or future financial results.
APOL shares sell at a very reasonable 12.6 times next 12-month EPS. No dividend is paid. We forecast strong growth during the next several years.
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A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
|Apollo Group (APOL)
4025 South Riverpoint Parkway
Phoenix, AZ, U.S.A. 85040
|Index Membership: S&P 500, S&P 1500 Super Comp, Nasdaq 100
Industry: Education & Training Services
Full Time Employees: 52,890