Apollo shares fall on enrollment worries

Apollo Group Inc. shares fell Tuesday, weighed down by enrollment worries for the company that runs the University of Phoenix.

THE SPARK: Apollo, a for-profit education company, reported Monday that its fiscal second-quarter net income tumbled 79 percent, hurt by a drop in enrollment. Revenue fell 13 percent.

Fewer enrollments and higher marketing costs were partially offset by lower restructuring and bad-debt costs. Enrollment at the University of Phoenix fell more than 15 percent to 300,800, while new degreed enrollment dropped 20 percent to 38,900.

THE BIG PICTURE: The for-profit education industry enjoyed a boom when the recession first hit, but demand has faded. In addition, increased criticism of the schools, new federal regulations and the sluggish economy have weighed on earnings. Apollo's said in October that it would close 115 of its smaller locations.

THE ANALYSIS: BMO Capital Markets analyst Jeffrey Silber said he is concerned about worsening enrollment trends and other issues for the company.

"We believe competition from both nonprofits and for-profits continues to intensify, adding to pricing pressure and complicating the value proposition to students," the analyst said in a research note.

However, he said Apollo continues to chip away at costs while generating healthy cash flows with an insignificant debt burden, and he kept an "outperform" rating on the company's shares.

SHARE ACTION: Down 42, or 2.3 percent, to $17.83 in afternoon trading Tuesday. The stock has lost about 60 percent of its value over the last year.