Zacks Industry Rank Analysis Highlights: Allstate, Apollo Group, ITT Education, New Oriental Education and Strayer Education
CHICAGO — Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis includes as by Allstate (NYSE: ALL), Apollo Group (Nasdaq: APOL), ITT Education (NYSE: ITT), New Oriental Education (NYSE: EDU) and Strayer Education (Nasdaq: STRA). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
* Analysts are raising fiscal 2009 forecasts on Apollo Group (Nasdaq: APOL)
* The credit crisis may not be posing a problem for private educators
* Property and casualty insurers are facing credit and weather risks
* Full-year profit forecasts cut on 27 property & casualty firms
A Nice Surprise from Apollo
Given the current economic backdrop, Apollo Group’s (Nasdaq: APOL) recent earnings were really impressive.
The for-profit education provider generated fiscal third-quarter profits of 85 cents, besting estimates by six cents per share. Total degreed enrollment rose 11%, helping to boost revenues 13.9% to $835.2 million.
The company’s focus on retaining students played a notable role. APOL has been opening “Student Resource Centers” to provide support to students. Students can go to these facilities to enroll, receive counseling, get tutoring, etc. Although APOL did not quantify the impact of these centers on revenues, management stated that they are having a positive influence.
Curiously, bad debt expenses declined as a percentage of revenues, falling 160 basis points to 2.4%. The company believes its retention efforts have helped, but given the current economic backdrop, it would be logical to expect the levels of bad debt to rebound.
Nonetheless, brokerage analysts are upbeat about APOL’s prospects. The majority of the 13 covering brokerage analysts raised their fiscal 2009 profit projections, pushing the consensus estimate 14 cents higher to $3.21. Because Apollo released its results just before the holiday weekend, it is possible that more positive revisions could be forthcoming.
APOL is a Zacks #1 Rank (“strong buy”) and is classified in Schools (http://at.zacks.com/?id=4711). This group contains 1 other Zacks #1 Rank stock, New Oriental Education (NYSE: EDU), and 6 Zacks #2 Rank (“buy”) stocks.
Student Loans Don’t Appear Be an Issue
Given news stories about the increasing difficulty of obtaining college loans, it would seem logical that for-profit education providers would be adversely affected. However, the positive earnings estimate revisions for APOL, ITT Education (NYSE: ITT) and Strayer Education (Nasdaq: STRA) suggest that this is not the case.
Greg Cappelli, an executive vice president at Apollo, observed on his company’s conference call that the increase in Title IV loan limits has helped. He also believes that some students are getting access to private loans. As is the case with mortgages, those with stable employment and good credit scores can get loans.
The tougher job market should also help enrollment, as more people seek to improve their resumes. Whether it be a bachelor’s degree or a professional certification, the tougher job market makes education more valuable.
Weather and Credit Crunch Are Risks for Insurers
Bertha became the year’s first hurricane. The Category 1 storm is not expected to reach landfall, though undoubtedly some residents of Bermuda are eyeing the storm’s course.
There will be several other named storms over the next few months and some will hit landfall. Though insurers model for such events, a couple of severe storms would strain their earnings – especially after last month’s flooding in the Midwest.
Insurance profits are also being adversely effected by pressure on premiums can be raised and the credit crisis. Within the past four weeks, brokerage analysts have lowered full-year forecasts on 27 different property & casualty firms.
Allstate (NYSE: ALL) particularly has been a recent target, with half of the 16 covering analysts lowering their full-year forecasts within the past 30 days. The current consensus earnings estimate of $5.63 per share is 19 cents below the average forecast of a month ago.
The company dropped an appeal of California’s mandated auto insurance rate reductions in late June, though this was probably more a coincidence than a reason for the cuts.
ALL has missed earnings expectations 4 consecutive times, by an average margin of 15 cents per share. It is possible that analysts are simply lowering the bar. Given the company’s track record, I’d probably err on the low side in forecasting what ALL will report if I were directly covering the stock.
ALL is a Zacks #4 Rank (“sell”) stock and is classified in Insurance-Property/Casualty/Title (http://at.zacks.com/?id=4710). This group contains 5 Zacks #5 Rank (“strong sell”) stocks and 19 Zacks #4 Rank stocks.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that “Earnings estimate revisions are the most powerful force impacting stock prices.” Since inception in 1988, #1 Rank stocks have generated an average annual return of +30%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 270% annually (+3% versus +11%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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