Apollo Education Group Inc. (APOL), owner of the University of Phoenix and the biggest U.S. for-profit college, rose to its highest level in 18 months after first-quarter profit topped analysts’ estimates.
Apollo gained 14 percent to $30.76 at the close in New York. The shares have climbed 47 percent in the past year.
Enrollment at the University of Phoenix has fallen in the past three years amid competition, government probes of for-profit colleges and concern about student debt. Apollo countered a 19 percent decline in fiscal first-quarter sales by slashing teaching costs by 21 percent and marketing costs 15 percent from a year earlier, said Jeffrey Silber, an analyst at BMO Capital Markets in New York.
“While there is a long road to go and the road may be choppy, trends appear to be moving in the right direction,” Silber, who rates the shares outperform, said today in a note to clients.
Profit excluding some items was $1.04 a share in the three months ended Nov. 30, Phoenix-based Apollo said yesterday after the close of U.S. markets. That beat the 90-cent average of analysts’ estimates compiled by Bloomberg.
While Apollo is going through a painful process of paring expenses, cash flow and cash on the balance sheet have kept it an attractive stock, said Steven Azarbad, co-founder of Maglan Capital LP, a hedge fund in New York. As of Nov. 30, the company had $916.9 million in cash, cash equivalents and short-term marketable securities, compared with $1.52 billion three months earlier. Debt payments accounted for most of the decrease, Apollo said.
“This business is throwing off cash and not burning through cash,” said Azarbad, whose firm manages about $60 million. Maglan bought about 300,000 shares of Apollo in July and August, he said.
Apollo raised its forecast for fiscal 2014 revenue to as much as $3.1 billion, up from its projection in October for as much as $3.05 billion. Analysts had estimated $3.04 billion.
Silber increased his 12-month target price on the stock to $35 from $32.
(To listen to a replay of Apollo’s conference call +1-855-859-2056 in the U.S., or +1-404-537-3406 internationally, using pin number 21105114, or go to http://www.apollo.edu.)
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