Apollo Group Inc (APOL): Stay Away From For-Profit Education

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Additionally, the competition from other online education providers has grown tremendously in recent years, particularly from nonprofit and public universities. Virtually every major university now offers some type of distance education, and these programs are generally more highly regarded by both students and employers.

DeVry Inc. (NYSE:DV), which offers career-oriented programs, is in the same boat. DeVry Inc. (NYSE:DV) has seen declining enrollment numbers for eight consecutive semesters. One particularly negative catalyst is the Department of Education’s “gainful employment” regulations, which requires schools to report graduation and job placement rates. This data has been particularly negative for for-profit educators, with DeVry Inc. (NYSE:DV)’s data showing a 40% loan repayment rate, which indicates approximately how many students found gainful employment after their program.

ITT Educational Services, Inc. (NYSE:ESI) has performed the worst of the three. Shares have plummeted from $133.75 to a low of $11.69 earlier this year before rebounding a bit. ITT Educational Services, Inc. (NYSE:ESI)’s revenues peaked in 2010 and are down by about 20% in the two years since then, with operating income down by more than 60%. If the trend of declining enrollment and bad publicity continues, it is just a matter of time before these companies begin hemorrhaging money, making their very good balance sheets less of a factor.

The Numbers: How Low Could It Go?

Accounting for the projected cost savings as a result of their restructuring, Apollo Group Inc (NASDAQ:APOL) is projected to earn $2.74 per share this year, dropping to $2.22 next year, a decline of 19%. While the $1.2 billion in net cash (cash minus debt) on Apollo Group Inc (NASDAQ:APOL)’s balance sheet sets a theoretical price floor of about $10.65 per share based on the total cash divided by the number of outstanding shares, the cash may not be there for too long. Even if the restructuring is a success (which will cost the company a significant amount of cash by itself), earnings are still expected to decline further, and with the constantly deteriorating public perception of for-profit universities, who knows how much worse it could get?

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Stay Away From For-Profit Education originally appeared on Fool.com.

Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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