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Why Is American Public Education (APEI) Down 9% Since Last Earnings Report?

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It has been about a month since the last earnings report for American Public Education (APEI - Free Report) . Shares have lost about 9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Public Education due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Public Education (APEI - Free Report) Q2 Earnings Match Estimates

American Public Education, Inc. reported second-quarter 2019 results, wherein earnings met the Zacks Consensus Estimate, while revenues beat the same. However, both the top and bottom lines declined year over year due to lower contribution from both the segments.

American Public Education reported adjusted earnings of 30 cents per share, in line with the consensus estimate. The reported figure decreased 23.1% on a year-over-year basis.

Revenue & Segment Discussion

The company generated total revenues of $70.6 million, which surpassed the consensus mark of $70 million by 0.8% but declined 3% from the year-ago period. Lower contribution from the Hondros College of Nursing (“HCN”) and softness in the APEI segment affected its overall results.

APEI’s revenues slipped 0.4% to $63.4 million from $63.7 million reported a year ago. The downside was due to lower segmental performance.

At American Public University System (“APUS”), student enrollment as of Jun 30, 2019 declined 1% from the comparable year-ago period to 80,300. During the quarter, total net course registration fell 1% from the year-ago quarter to 75,900. Net course registrations by new students also declined 2% from the prior-year quarter to 9,300.

HCN’s revenues totaled $7.1 million, down 21.6% year over year owing to reduced enrollments. Total enrollment in HCN also dropped 24% from the prior-year quarter to 1,540 students and new student enrollment fell nearly 35% to 315.

Since Jan 1, 2019, the APEI segment started charging HCN for the value of courses taken by employees at APUS. During the quarter, inter-segment elimination totaled $29 million.

Operating Highlights

Total costs and expenses during the quarter grew 0.2% year over year. Instructional costs & services expenses, as a percentage of revenues, decreased 90 basis points (bps) to 40.7%. However, selling & promotional expenses — as a percentage of revenues — increased 180 bps. General and administrative expenses, as a percentage of revenues, also grew 150 bps.

Financials

As of Jun 30, 2019, total cash and cash equivalents were approximately $220.8 million compared with $212.1 million at the end of 2018. Capital expenditures totaled $3 million in the first six months of 2019 compared with $3.6 million in the comparable year-ago period.

During the reported quarter, the company repurchased 327,461 shares of common stock for approximately $9.6 million.

Third-Quarter 2019 Guidance

For third-quarter 2019, the company expects total revenues to decline within 7-11% from a year ago. It expects the bottom line between a loss of 2 cents and earnings of 3 cents per share, significantly below the Zacks Consensus Estimate of 30 cents.

Net course registrations at APUS are expected to decline within 10-15% year over year. Registrations by new students are anticipated to decrease within 12-17% from the year-ago quarter. Importantly, the U.S. Department of Defense announced the closure of the Navy's Tuition Assistance program funds until September 2019. Therefore, APUS expects that the temporary exit may result in a loss of approximately 4,300 net course registrations, accounting for approximately $2.9 million of revenues in the third quarter.

At HCN, total and new student enrollment is likely to decline 29% each from the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -98.39% due to these changes.

VGM Scores

Currently, American Public Education has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise American Public Education has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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