An Upgrade for Apollo

For-profit education is one industry that has bucked the recent rally, as investors fret over government regulation and investigations and enrollment numbers.

Industry leader Apollo Group (APOL) has been no stranger to the sector’s sell-off, falling more than 20% in the past three months alone.

Yet today it got a boost, rising 2.6% in mid-morning trading, in part from FBR Capital Markets analyst Matt Snowling, who upgraded the stock from Underperform to Market Perform.

Snowling noted that much of the bad news is already baked into the stock at this point, and that management is also taking the right steps to position itself in an environment of increased regulation. “We continue to have a negative bias on the group due to regulatory and budgetary constraints, but we also believe that Apollo’s strong brand and steady cash flow and earnings generation should provide support to the shares at current levels,” he said.

Snowling maintained his $40 target price. He also lowered his 2011 and 2012 earnings estimates, due to lower enrollment.

This comes after Friday’s Q&A between for-profit officials and investors and the Department of Education’s James Kvaal, part of a symposium held by the Association of Private Sector Colleges and Universities.

Kvaal maintained the Obama administration’s position, that it is not biased against the sector and appreciates the role for-profit schools play. However, he reiterated that the schools must meet certain standards and that they had a responsibility to place graduates in gainful employment, especially given the high debt load that many have.

Most other for-profit education stocks are also up today in tandem with the market rise.


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