BMO Cuts Apollo Education Estimates, But Says Stock Worth Considering On Sum-Of-The-Parts Valuation

In a report published Tuesday, BMO Capital analyst Jeffrey M. Silber maintained an Outperform rating on

, while lowering the price target from $29 to $20. The management has reduced the full year guidance for the third consecutive quarter, despite the better than expected F3Q15 EPS. "Despite the EPS beat, enrollment and revenues were subpar and management reduced its F2015 guidance for the third consecutive quarter. However, it did announce some radical changes at its flagship University of Phoenix (UOP) including more stringent admissions criteria, fewer start dates, consolidated campus footprint and dramatic cuts in its associate's degree programs," Silber said. Although the analyst believes that these moves would lead to improved student retention and outcomes, the company is likely to continue to shrink, which is not necessarily a negative outcome. In addition, the management has guided to a decline of almost 25 percent, as compared to F2015, in its UOP enrollments by the end of F2016. This decrease has been undertaken with the intention of helping Apollo Education achieve stabilization by F2017, followed by a return to growth after that. "[W]e do not expect any but the most patient investors to look at this name in the interim. Nevertheless, we still believe this stock is worth looking at on a sum-of-the-parts basis," Silber added. The EPS estimates for FQ15, F2015 and F2016 have been lowered.