Thursday, October 29, 2009

Apollo Earnings, Lawsuits and Outlook

APOL current price 57.71


Earnings

Apollo Reported Q3 Earnings and missed analysts estimates with EPS of $0.59 vs. estimates of $1.04. Although revenue increased nearly 30% year over year they had various onetime expenses that hurt EPS such as an $80.5 million litigation settlement, $9.4 million write-off of assets and other onetime expenses. If these expenses did not occur EPS would have been $1.06. This may be a good time to buy a fast growing education stock at a discount. But keep in mind that this investment does not come without risk.

Risks

Legal problems, 1994 - 2006 Apollo put the wrong dates on certain documents and Apollo’s Chief Financial Officer and Chief Accounting Officer were forced to resign.

Whistle blower suit- An Apollo employee brought claims against Apollo that they were using illegal practices in compensation for their recruiters this is the current case that they have to accrue legal cost for.

Latest- SEC is beginning an investigation in the revenue and cost recognition of Apollo, most likely how they report revenue and costs when a student drops out. Apollo admitted that it is a grey area in their accounting.

What's Ahead

My interpretation of these law suits is either Apollo has bad luck, or has incompetent managers and lawyers. If in fact Apollo is intentionally manipulating earnings by using grey areas in their accounting practices, it could drastically hurt the company’s reputation and will drive its’ stock price down even lower. Not to mention fines and penalties. If this is just another case of a few grey areas that need adjusted and fixed with Apollo escaping any penalties or fines, their stock should adjust back to or above pre-earning levels.

It is by far way too early to tell, until the company or SEC release more details but I am going to jump the gun and buy this stock at a great price

2 comments:

  1. Take a look at the Bloomberg story on 10/30/09. Very damaging to APOL.

    ReplyDelete