Shares of Apollo Group Inc. slid 6 percent premarket trading Tuesday after the for-profit education company issued a dim forecast.
The Phoenix company posted a second-quarter profit of 51 cents per share late Monday, reversing a loss from a year earlier. Adjusted earnings per share of 58 cents beat the average analyst forecast by 20 cents. Revenue fell 7.5 percent as enrollments dropped 8 percent, but it still beat estimates.
But Apollo expects new enrollment to turn negative in the third quarter and Citi Investment Research predicted that second-half operating income will fall short of Street expectations.
Like many for-profit educators, Apollo has been dealing with the impact of new federal regulations on enrollment. Stricter government regulations enacted last summer prompted the companies to raise admissions standards, which has cut enrollments and profitability.
"While we recognize that turnarounds are inevitably choppy, Apollo's size (adding 50,000 new students per quarter) makes it more vulnerable, in our view, to large directional swings," Citi analyst James Sanford wrote.
Sanford maintained a "Neutral" rating on the stock but trimmed his price target by $1 to $46.
Brandon Dobell of William Blair maintained his "Outperform" rating but added that, "We believe fiscal 2013 consensus will have to come down significantly, and it is tough for us to see a positive near-term catalyst."
Shares fell $2.65 to $40.55 before the opening bell in electronic trading.