Houston, We Have a Problem (APOL)

On April 14, 1970, an oxygen tank ruptured aboard the Apollo 13 space craft speeding toward the moon causing Command Module Pilot Jack Swigert to utter the infamous words, “Houston, we have a problem.” Investors and traders may be muttering the same words after the Apollo Group (NASDAQ: APOL) released its fourth-quarter earnings yesterday after the close of the market.

The for-profit higher education company reported earnings of $0.52 per share that surpassed the expectations of analysts by three cents, but the results showed a 49% decline in earnings from the fourth quarter in 2011. New enrollments, which drive revenues, showed a drop of nearly 14% from the previous year. For the full fiscal year, Apollo Group had earnings of $3.56, which missed the projections of analysts by a penny.

The news set off a wave of analyst downgrades that included Bank of America cutting its recommendation on the stock from “buy” to “neutral” and William Blair reducing its “outperform” rating to “market perform”. BMO lowered the price target for Apollo shares to $34.00 from $45.00.

In response to tight conditions, the Apollo Group plans to close 115 University of Phoenix locations comprising of 25 main campuses and 90 satellite learning centers. The closing will eliminate approximately 800 jobs.

The disappointing earnings and outlook, along with analyst downgrades, had sellers jumping ship. Though under pressure all year, the wave of selling today sent the stock plunging to lows not seen in 10 years. Share prices gapped down more than three dollars at the opening. The first trade of the day at $24.20 also marked the highest point that the stock would trade all day. Share prices continued to slide for most of the day. Hank Greenberg on CNBC made some additional prognostications about the future of the Apollo Group that provided a little extra anxiety for traders and investors. As the close of the trading session neared, the stock traded for $21.34. This would mark the low for the day, the last 12 months and the last decade. When the bell rang to end the day, the stock showed a loss of 22% to close down $6.09 at $21.40. The tally for the number of shares traded on the day amounted to over 15 million shares, which exceeded the average daily volume of 1.9 million.

In January, Apollo Group shares hit their 12-month high when the stock traded for $58.29. Then the education company reduced its operating profit outlook for fiscal year 2012, which pushed the selling snowball down the mountainside. Share prices dropped almost 20% in one day following the announcement. Traders and investors will have to decide whether today marks the end of a long decline in Apollo Group stock prices or the beginning of another leg down.

Apollo Group offers online and on campus higher education programs, including master’s and doctoral degrees through the University of Phoenix, The College for Financial Planning Institute, and Meritus University. The company has campuses and learning centers in 40 states and the District of Columbia plus Puerto Rico. The Phoenix, Arizona-based company was founded in 1973.

 

 

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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