February 5, 2009 - Apollo Group Inc. (APOL-NASDAQ) through its subsidiaries, provides various educational programs and services at high school, college, and graduate levels. Its subsidiaries include The University of Phoenix, Inc. (University of Phoenix), Institute for Professional Development (IPD), The College for Financial Planning Institutes Corporation (CFP), Western International University, Inc. (Western International University), Insight Schools, Inc. (Insight Schools), Apollo Global, Inc. (Apollo Global), and Meritus University (Meritus).

IPD provides program development and management consulting services, including degree program design,curriculum development, market research, student recruitment, accounting, and administrative services to private colleges and universities in 21 states.

CFP provides financial planning education programs, including the certified financial planner professional education program certification, and certification programs in retirement, asset management, and other financial planning areas.

Western International University offers undergraduate and graduate degree programs at Arizona campus locations, online, and also through various joint educational agreements in China and India.

Insight Schools offers curriculum and administrative services to public schools to operate full-time online high school programs in 10 states.

Apollo Global focuses on the provision of education services. Meritus provides degree programs online to working professionals in Canada and internationally. The company was founded in 1973 and is headquartered in Phoenix, Arizona.

Here's a stock that's trading near its all-time high. I can't remember the last time I saw a stock doing that. After cratering to $37.90 early in 2008, the stock has rocketed back to the $83 level. The all-time high was set in 2004 when the stock hit $98 a share. Can it break through that and move higher, especially in this mess of a market?

If earnings keep growing, it has a chance. Over the last 5 years, earnings per share (eps) averaged 11% a year growth. For the next 5 years, analysts see eps increasing by 22.3% a year. For 2008, (fiscal year ends August 31), eps finished at $2.87, up from $2.35 in 2007. For 2009, analysts predict $3.80 a share, then in 2010, $4.56. In the current quarter, ending in February, analysts see eps of 64 cents a share, up from 41 cents in the same quarter last year. For the May quarter, they expect $1.10, well above the 85 cents earned last year in the same quarter.

Enrollment is breaking records due to high unemployment and more federal funding for education loans. New students are filling the hallways and retention of existing students is high. The demographic Apollo focuses on (18 to 25 year olds) is going back to school to get an associate or bachelor degree to increase their chances of finding a better job. When unemployed, go to school, seems to be the mantra.

Everything's not all roses. One area of concern is bad debt. It hasn't grown lately, even fell a little in the November quarter, but it has the potential to be a problem because of all the new students who may have a different ability to pay given the high unemployment rates. Bad debts run about 3.5% of total revenues now which is no concern, but going forward, this is an area to watch closely.

Another one to look for: employment picking up. Once jobs are available, enrollment could decrease. Students will go back to work rather than stay in the classroom. In this regard, the stock is counter-cyclical to the economy. Watch for employment numbers to rise as an indicator that maybe enrollment will fall.

More numbers: Market Cap is $13.2 billion. Forward P/E is 18. Price to Book is 13. Operating margin for the last 12 months was 25% with a Profit margin of 15.52%. Return on equity is an eye-popping 54%. There's no debt. Cash on hand is $798 million. That translates to $5 a share. The current ratio is 1.49. Book Value per share is $6.50. There are 159.54 million shares outstanding and a float of 158.8 million. Insiders own about 14% of the stock. There is no dividend.

While valuations are high for APOL, to keep them in perspective, take a look at the P/E ratio. From 2001 to 2005, it ranged from a low of 31.7 to a high of 41.4 (average for the year). Right now the trailing P/E is 26 and the forward P/E is 18.25. Does that make the stock a bargain? Hardly, but it does suggest that if a more "normal" P/E were reached, even at the low end, say at 30, and the company delivers eps next year as expected, the stock could well be above its old highs in no time. But first those earnings have to show, and employment has to stay low, and a few other consideration have to be there for a higher P/E. Do some more homework on APOL if you're looking for a counter-cyclical stock. You may give it an A.

Company Web site: www.apollogrp.edu

- Ted Allrich