Solomon

Apollo Group Needs an Accounting Refresher

The reclass is not the main issue with the stock, though perhaps indicative of sloppy management.

APOL is over-valued on a P/E and cash flow basis, has a rising cost structure, and facing higher student acquisition costs and slowing enrollment growth due to reduced availability and higher cost of student loans.

The result, lower expected earnings and a lower multiple - sellers outnumber buyers and the stock has fallen dramatically.

That's what the shorts thought before the recent conference call. What is the incremental call, here?

Seems like the sector and market want to bounce off lows here. APOL noted on the call that they have material buy-back availability in their stock repurchase plan.

Comparable, STRA announced it's earnings date of on 4/30/08 pre-market, with a 10 am eastern time conference call. Expected EPS $1.58 vs. $1.30 prior year.

Look for more indications of stress on student borrowers in form of bad debt, fewer student loans, more loans above limits, slowing enrollment growth.

In related news, CIT and Northstar announced exits from the student loan business today.

Analysts and current institutions are defending the stock with positive comments, but lowering price targets. Executives are net sellers of their shares and exercised options.

If STRA evidences this weakness in student enrollment growth, expect to see APOL and other sectors companies' shares under pressure.