Slower enrollment growth for Apollo?
Barron's: Shares pricey if growth wanes
By CBS.MarketWatch.com
Last Update: 1:19 PM ET Aug. 23, 2003
WASHINGTON (CBS.MW) -- Shares of Apollo Group, the parent of the University of Phoenix and the University of Phoenix online, have been on fire this year, but may begin to cool off if rapid growth in student enrollment begins to slow, according to Barron's.
Apollo (APOL: news, chart, profile) notched an all-time high of $67.30 on July 3 and remains in the 60s, up from their 2002 close of $44. The Phoenix-based firm has seen annual revenue of $1 billion and a five-year historical earnings growth rate of 38 percent, Barron's noted, but investors must wrestle with the fact that the stock price reflects optimism about future prospects at the same time enrollment growth is moderating.
At a recent price of $67.10, the firm's multiple was 42 times 2004 estimated earnings, well above Apollo's competitors. The next closest valuation in the education sector belongs to Strayer Education, selling at 47.4 times this year's earnings and 38.7 times expected 2004 earnings, Barron's said.
Apollo saw enrollment at Phoenix Online -- which accounts for around 40 percent of the firm's students and has been the main source of growth -- rise at an annual pace of 59.7 percent from the year earlier level in the fiscal third quarter, Barron's said. While strong, growth was down from 67.6 percent growth in the preceding quarter and 69.1 percent in the first quarter.
Alexander Paris Jr., an analyst at Barrington Research who has rated the stock "underperform," estimates growth in the current quarter will be 55 percent.
Apollo CEO Todd Nelson downplayed concerns, telling Barron's that growth at Phoenix Online is "really where we said it would be two years ago." He sees enrollment expanding at 50 percent for a while, but "over time, the law of large numbers will start to bring online down," but emphasizing "we don't see that happening right now."
Barron's said that the company offers a solid balance sheet and effective business plan, leaving a "very lofty valuation" as the only downside.
"They've done amazing things there, and they'll probably continue to do amazing things. They'll just be a little less amazing then they were over the past two years," Paris said.
