Apollo Group Finds Salvation in Outlook… When Buybacks Win (APOL)

It was not that long ago that Apollo Group Inc. (NASDAQ: APOL) was under serious pressure from Washington D.C. along with other for-profit education stocks.  Now the regulations have come down and they appear to be far better than the worse case scenario for many for-profit educators.  If the indication of Apollo’s third quarter results are an indication then it may be another “all clear” sign ahead.

Apollo’s adjusted earnings were $1.51 EPS, well above the Thomson Reuters estimate of $1.33 EPS.  The company also gave guidance to a range of $4.65 to $4.75 billion for 2011 and it gave guidance of about $4.00 to $4.25 billion in 2012.  Here is why that matters: Thomson Reuters has estimates of $4.67 billion this year (August year-end), but the estimate for 2012 is $4.14 billion.

Outside of special items, the company gave operating income guidance of $1.15 to $1.20 billion in 2011 and $675 to $800 million.

This is a mid-point guidance ahead and it translates to a lower drop-off than the base case that analysts were fearing.  Our take is that analysts may even come out and say that Apollo’s management team was being very conservative.

The owner of the University of Phoenix beat earnings expectations because tuition fees offset a large drop of just over 40% in student enrollment.  Its total degreed enrollment dropped by about 16%.  This also matters.  For-profit education stocks are no longer growth stocks.  They have to be evaluated as value stocks for the time being.

The company is also winning on its share buyback plan: It repurchased approximately 4.1 million shares of common stock at a weighted average purchase price of $40.26 and $39.48 per share for a total expenditure of $167.3 million during the quarter; for the last nine-months is repurchased and 10.6 million shares of common stock at a weighted average purchase price of $39.48 per share for a total expenditure of $418.7 million.

At the end of May, the company had approximately $357.7 million remaining available to repurchase stock.  Apollo also ended with more than $1.42 billion in unrestricted cash at the end of the quarter.

Apollo closed up 1.5% at $43.68 today and shares are up 6% around $46.00 in the after-hours session.  Its 52-week trading range is $33.75 to $53.61.

UPDATE AT 5:50 PM EST:  Apollo shares are now down almost 3% at $42.44 on last look in the after-hours session despite being under the 90/10 rule.

JON C. OGG