American Public Education: Growth Coming Back, Likely A Recovery Play

seekingalpha03-29

American Public Education stock has tripled in the last six months but is still down over 50% in the last five years.The recent disastrous acquisition of Rasmussen University is turning around, and ...

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Data by YCharts I'll first give a short overview of APEI's activities before discussing why the stock price remained flat between its IPO in 2007 and 2020. Then, I'll discuss why the stock has plummeted since COVID-19 but has increased recently. Finally, I'll provide you with my outlook for 2024 and beyond. What does APEI do?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"HCN":"HCN房产信托","UTI":"环球技术学院","BK4204":"教育服务","APEI":"美国公共教育","PRDO":"Perdoceo Education Corporation","AMU":"UBS AG (London Branch)","APU":"Amerigas Partners L.P."},"translate_title":"美国公共教育：增长复苏，可能是复苏的游戏","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMU":1,"APEI":1,"APU":1,"HCN":1,"PRDO":1,"UTI":1},"content_text":"American Public Education stock has tripled in the last six months but is still down over 50% in the last five years.The recent disastrous acquisition of Rasmussen University is turning around, and its goodwill has now been written off.The suffering might be over. Costs are cut, and revenues are growing. Trading at 6x depressed FCF, APEI might be a buy.Stephen Swintek/DigitalVision via Getty Images While the stock price of American Public Education, Inc. (NASDAQ:APEI) has tripled in the last six months, it is still down more than 50% over the last 5 years. Is the recent surge the beginning of a successful turnaround? Or rather, one additional episode in the long-lasting march of destroying shareholders' value at a rate of negative 7% a year? Let's find out. Data by YCharts I'll first give a short overview of APEI's activities before discussing why the stock price remained flat between its IPO in 2007 and 2020. Then, I'll discuss why the stock has plummeted since COVID-19 but has increased recently. Finally, I'll provide you with my outlook for 2024 and beyond. What does APEI do? American Public Education, Inc. is the holding company above several universities, each mainly focused on adult learners.  The largest university in the portfolio is the American Public University System. It is an online university that caters to 89,800 adult learners, including military personnel (66% of students) and veterans (11% of students). Founded in 1991 as a graduate institution for military officers, APUS has expanded its offerings to a broader audience, emphasizing education for those in service roles. Today, it includes the American Military University (AMU) for military and related communities and the American Public University (APU) for professionals in fields like nursing and business. In 2013, APEI acquired Hondros College of Nursing (HCN). This college educates around 3,100 nursing students across eight campuses in three states, offering PN (65% of students) and ADN (35% of students) degrees with direct entry options for qualified students. In 2021, APEI also acquired Rasmussen University (then called Rasmussen College). This University offers nursing and health sciences education to over 14,100 students across 22 campuses and online. Initially focused on business education, RU expanded into healthcare in 2006, now offering a range of nursing degrees from pre-licensure to Doctorate of Nurse Practice. Approximately 5,700 students are enrolled in nursing programs, with most pursuing pre-licensure degrees. Finally, in 2022, APEI completed its most recent acquisition, taking over Graduate School USA. GSUSA provides career education to the federal and public workforce, serving over 100 federal agencies. It offers over 300 courses in professional development and leadership through online and in-person training. In 2023, GSUSA trained over 27,000 people.  As such, through these acquisitions, APEI has diversified its course offerings away from military training and towards nursing. Still, the most important University remains the APUS segment, both in terms of enrollment as in terms of revenue (and in profits, as I will come back on down below): Q4 earnings APEI Why was the stock flat between 2007 and 2020? The APUS universities were reportedly of high quality and among the best for-profit universities, according to a U.S. Senate investigation in 2012. As such, up until 2014, the number of enrolled students exploded. APUS had only around 15.5k enrolled students in 2006, which increased to 78k in 2010 and 112k in 2013. Along the same line, revenue increased from $107M in 2008 to $330M in 2013, while EBIT almost tripled from $25M to $67M. All without diluting shareholders. Data by YCharts The stock, however, remained flat. This is because investors had valued APEI in 2009 as a growth stock, valuing it at a PE of >40x. At the end of 2013, this valuation had come down to a PE of 18x. Data by YCharts At 18x, the market correctly priced in years of lower growth. Management tried to combat this and decided to hunt for inorganic growth. As discussed above, it acquired HCN in 2013. They paid 46 million dollars, which was reasonable given that Hondros made over $3M in operating profits. However, this did not fix the underlying issue: the growth in APEI's main asset, APUS, had stopped. Over the next years, between 2013 and 2020, no further acquisitions would be made, and revenue declined every single year by mid-single-digit. EBITDA would even halve from $80M to $36M: Data by YCharts As management bought back around 20% of its shares over these 5 years, and valuation increased a bit to 22x PE, the stock price traded sideways for another five years up until 20% of its shares over these 5 years, and valuation increased a bit to 22x PE, the stock price traded sideways for another five years up until 2020. Why did the stock plummet between 2020 and 2023? In 2019, Angla Selden joined the company as CEO. She has experience in online education and educational software. It was hoped she could re-invigorate APEI's growth. Not long after her appointment, Covid-19 forced universities to shut down and go into lockdowns. Investors believed this to be a unique opportunity for APEI, and APUS more specifically, given it is completely online. As such, the stock price surged 40% during 2020, far outpacing the overall market. Indeed, performance in 2020 was strong, with revenue finally growing again (12%) and margins improving considerably (EBIT margin improved from 7 to 9%). In the wake of these strong results, CEO Selden decided to use the firm's strong cash balance to ensure APEI's growth for the years to come. In 2021, she acquired Rasmussen University for $329 million, consisting of $300 million in cash and $29 million of non-voting preferred stock. One year later, in 2022, she acquired G.S.USA for $1 million. The acquisition of RU would be a nightmare and the (almost) sole reason for the horrendous stock performance since. In 2021, RU's enrollment numbers dropped by 3%. In 2022, it dropped an additional 12 (!) percent and a further 6% in 2023. As such, while the University made a profit of $1.6M in 2021, it turned a loss of $20M in 2022 and $39M in 2023 (even after ignoring the goodwill amortization)! Furthermore, corporate expenses also increased in trying to manage the now bigger group. By the end of October 2023, the stock price had collapsed to 4$ - one-sixth of the price when Selden became CEO just 4 years prior. The acquisition has, thus, been nothing short of disastrous. Data by YCharts Why the resurgence in 2024? After posting horrendous numbers throughout 2022 and into 2023, expectations had become rather depressed. Even after the share price had been slashed by the beginning of 2023, the stock halved after Q4 22 numbers were released. This resulted in further downward adjustments of expectations. These were too pessimistic, in hindsight, and investors have been relieved by the numbers in the prior 4 quarters: TIKR Q4 2023 was even quite good: adj. EBITDA margin came in at 17% on the back of better cost discipline. Even Rasmussen University turned out to be \"profitable\": APEI Q4 earnings Moreover, management has guided for an EBITDA margin greater than 10% in the seasonally weaker Q1 2024. That's not all. By the end of 2024, the expensive IT-support contract with Collegis will expire. Also, APEI has been making costs to transition this support in-house. Most of these costs will stop from Q4 2024 onwards. What next? APEI has done 2 very large goodwill impairments in the past two years, such that almost all of the goodwill resulting from the acquisition of Rasmussen University has been written off. At the same time, it has increased tuition fees, lowered marketing expenses, and stopped the expensive contract with Collegis because it believes it can do marketing and IT support in-house. Moreover, enrollments are increasing again in APUS: APEI Q4 earnings As such, as management has guided for an EBITDA margin of 10% in Q1 2024, I expect that the margin for the full year will exceed 10%. Management has guided a bit lower but explained in the call that they \"certainly want to make sure [they]'re not being too aggressive on that end\". At a 10% margin, EBITDA should be $62M. At the same time, they are guiding for 20M in CapEx (upper end). As such, net of SBC, free cash flow should be $40M in 2024. In 2025, I believe that FCF will increase further because:  I suspect management will stick this time to having cost discipline; The Collegis-costs will be excluded for the full fiscal year, as well as the transition costs; Changing Illinois legislation should also allow most Rasmussen University campuses to enroll more students; APUS should continue on its recently re-found growth trajectory.   As such, at a market cap of $253M, APEI trades at less than 6x forward (conservative) FCF, which is likely to have bottomed. Peers such as Universal Technical Institute (UTI) or Perdoceo Education Corp. (PRDO) trade at 14x FCF. Given the stock's recent strong momentum, I feel like there is still plenty of room for investors to buy into this recovery play.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2423546954"}