Regulatory review of financial aid practices, enrollment slowdown hurt shares of Apollo Group
By APFriday, January 8, 2010
Apollo shares slide as gov’t reviews aid practices
NEW YORK — Shares of for-profit education provider Apollo Group Inc. fell Friday after it said a Department of Education report found that its students were not properly aware of tuition costs and financial aid eligibility, and that the school was late repaying federal student aid.
Apollo, which owns the University of Phoenix, said in its earnings report Thursday it might have to pay $1.5 million because of the report’s findings, and may need to post a letter of credit for $125 million by Jan. 30.
The Education Department’s review follows an inquiry from the Securities and Exchange Commission into Apollo’s revenue recognition practices. Apollo did not provide an update on that probe.
Apollo’s shares have dropped more than 12 percent since it reported the SEC’s probe in late October.
Apollo shares slid $3.62, or 5.6 percent, to $60.32 in Friday morning trading.
“These issues could linger and consume management’s time,” said R.W. Baird analyst Amy Junker. She rates the stock “Neutral.”
Apollo said the Education Department’s review had six findings, all requiring a response from the company. Three relate to how the University of Phoenix decides what date a student leaves the school. Another involves the untimely return of federal financial aid, which makes up nearly 90 percent of Apollo’s revenue.
While Apollo also reported on Thursday that its profit rose 33 percent and sales were up 31 percent during its fiscal first quarter, it said growth in new student enrollment slowed.
Baird’s Junker noted that new student enrollment rose nearly 14 percent to 98,100 in the fiscal first quarter, down from 23 percent growth in the fourth quarter of 2009 and 26 percent growth a year ago.
BMO Capital Markets analyst Jeffrey Silber downgraded Apollo shares to “Market Perform” from “Outperform” because of the enrollment trend, even as he noted that it was probably for the best. “Enrollment slowed partly because the school was trying to improve the quality of its students, he said.
The company likely wants to slow down enrollment of associate degree students, which has grown to 45 percent of total enrollment from 15 percent in 2005, Wedbush Morgan analyst Ariel Sokol said.
Associate degree students have low graduation rates — the University of Phoenix said in a December report that 31 percent of associate degree students had not yet graduated after more than three years.
They are also more likely to default on tuition loans. Apollo said Thursday that its bad-debt expense was rising, partly due to the increasing number of students in associate degree programs.
