PHOENIX (AP) — THE SPARK: Shares of Apollo Group Inc., operator of the University of Phoenix and the nation's largest for-profit college chain, rose 6 percent in morning trading after an analyst upgraded the stock on improved earnings prospects for 2012 and shares have fallen to near five-year lows.
THE BIG PICTURE: Credit Suisse analyst Kelly Flynn upgraded Apollo Group to "Outperform" from "Neutral" by Credit Suisse analyst Kelly Flynn and the price target boosted to $47 from $35. Flynn also raised the 2012 earnings estimate to $2.73 from $2.35 and the 2013 estimate to $3.05 from $1.40. Analysts surveyed by FactSet expect $3.24 for 2012 and $3.40 for 2013.
THE ANALYSIS: The Apollo Group has started changes in enrollment procedures that Flynn believes may boost enrollment growth for the first quarter and 2012. Flynn estimates an 8.6 percent increase in new students for 2012 and 6.9 percent growth for the first quarter. Previous estimates modeled enrollment declines.
As a result, Flynn increased earnings estimates. In addition, the company's shares have fallen about 30 percent in the past two months and are approaching five-year lows, making them an attractive price for investors.
Flynn noted that potential negatives include possible federal regulatory changes that could impact profitability and concerns about Apollo's ability to sustain long-term student enrollment gains and earnings growth.
The for-profit education industry has been criticized because its classes tend to cost more than those of public institutions, and its students default on their loans at higher rates and drop out of school more often. In June, the Obama administration unveiled new rules that could cut more programs off from government aid if students aren't able to acquire decent-paying jobs.
SHARE ACTION: Shares of Apollo Group rose $2.74, or 7 percent, to $41.65 in morning trading. They've traded between $33.75 and $54.23 in the past 52 weeks.
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