* What: Q3 results
* When: Monday, June 29
* Q3 expected to meet or beat market expectations
* Enrollments continue to grow
By Amulya Nagaraj
BANGALORE, June 26 (Reuters) - Apollo Group Inc APOL.O, like other education providers, has benefited from the recession as more people returned to school in search of a better degree, but analysts say the trend will taper off as the economy improves.
Thus the third quarter ended May 31 might well be the inflection point for the for-profit education provider.
“Enrollments will still be strong but this will probably be the best quarter. It will slow down after but not like falling off a cliff,” BMO Capital analyst Jeffrey Silber said.
Economists have been talking about green shoots emerging in the U.S. economy ravaged by the credit crisis, and investors believe they do not bode well for education companies.
“We believe that most investors expect Apollo to meet or exceed (third-quarter) consensus estimates given favorable economic conditions for the company, but remain skittish regarding the company’s ability to execute as the economy improves,” Wedbush analyst Ariel Sokol said in a preview note dated June 22.
Analysts on average are expecting earnings of $1.12 a share, before items, on revenue of $1.04 billion, according to Reuters Estimates.
The company, which is the parent of the University of Phoenix, has posted strong results with enrollment growth exceeding analysts’ expectations for the past four quarters.
Analysts expect the streak to continue at least for third quarter.
BMO Capital’s Silber expects total enrollment growth to be about 20.5 percent in the third quarter and 17.3 percent next.
Enrollments for new degrees are expected grow about 20.5 percent in the third quarter and drop to about 13.8 percent for the next.
The University of Phoenix saw a 23 percent jump in enrollments for new degrees in the second quarter, compared with the same period a year earlier.
The university, which also offers online programs under its Axia unit, accounted for about 95 percent of total revenue in 2008.
“As the largest and most liquid name in the group, with exposure in a range of career disciplines and degrees ranging from Associate to Doctoral, Apollo is typically seen as the bellwether,” Signal Hill’s Trace Urdan said in a note.
Shares of Apollo, like those of its peers ITT Educational Services Inc (ESI.N) and DeVry Inc DV.N, have fallen about 25 percent since its 52-week high in January this year, as the sector is plagued by fears of increased regulation or scrutiny under the Obama administration.
Last quarter, the company said it would likely be subject to annual focused program reviews by the U.S. Department of Education.
The University of Phoenix will attract the most regulatory attention because of its size, Barrington’s Alexander Paris said.
“But I think regulatory concerns are overblown,” he added.
The education provider recently agreed to acquire Britain’s BPP Holdings Plc as a part of its strategy to expand overseas.
“As the company invests overseas, it helps to diminish a medium-term risk surrounding potential saturation of its core markets and ensures that this rate of growth can continue on a sustained basis,” Signal Hill’s Urdan said.
It also plans to implement a 2 to 6 percent increase in tuition fee at the University of Phoenix from July.
“I think we are in good buying points for Apollo and most of the companies in the group right now, for longer-term oriented investors,” Barrington’s Paris said. (Editing by Ratul Ray Chaudhuri)