12/30/2015

Contrarian Value; Aggressive Reduction of Share Count, Debt and Enterprise Value


Controversial Apollo Education Group (APOL)  deserves a closer look. Its an outlier for aggressive share repurchases, debt reduction and its  mean reverting potential 52 week change of  -76.52%. Financially sound with a z score greater than 5, and Sloan ratio to detect aggressive accrual accounting is safe at .70. Short as a % of Float is 4.26% or 4,222,709 shares (2.50 days to cover). Short share count reduced from September’s 7,052,285 (5.6 days to cover) and February 9,919,960 shares short (10.90 days to cover). Further,  confidence from institutional value investor Joel Greenblatt (Gotham Capital) holds 2% of shares outstanding. He added to his position this past quarter at higher prices.

Apollo Education Group (APOL) offers private education services, undergraduate, graduate, professional development and other non degree educational programs.

APOL is risky! It could suffer from negative regulatory rulings or reduction in student loans. The entire for profit education sector crushed do to marketing practices, fraud and SEC investigations. Future government regulation drives APOL's valuation uncertainty.

I discovered APOL doing a scatter plot searching for companies paying down debt, reducing shares outstanding with a dismal 52 week stock price returns and strong financial position.  APOL is a clear potential value creating outlier.

Let’s start with the current financial strength; cash per share is 6.44 versus the stock price of $7.91 (12/30/15), book value per share 10.56.Its free cash flow positive.
Current Valuation;
Market Cap: 858.31M (price per share $7.91) , Enterprise Value:  215.58M
Price/Book : 0.76 ,EV/Revenue: 0.08 , EV/EBITDA : 0.64Profit Margin (ttm):  1.16% , Operating Margin (ttm): 7.91%
Return on Assets (ttm): 4.79% ,Return on Equity (ttm): 3.95%
Revenue (ttm):  2.57B , Revenue Per Share (ttm):   23.74
Qtrly Revenue Growth (yoy):  -12.00%
Gross Profit (ttm):    1.36B ,EBITDA (ttm):  335.06M
Total Cash (mrq):698.38M ,Total Cash Per Share (mrq): 6.44
Total Debt (mrq): 45.65M
Current Ratio (mrq):  1.55 ,Book Value Per Share (mrq):   10.56
Operating Cash Flow (ttm):  168.58M , FCF  (ttm):   112.74M
52-Week Change:  -76.22%
52-Week High (Jan 2, 2015): 34.19 ,52-Week Low (Oct 27, 2015): 6.83
Shares Outstanding: 108.04M ,Float:  94.08M
% Held by Insiders:    12.33% ,% Held by Institutions:     90.50%
Shares Short (as of Dec 15, 2015):  4.22M , Shares Short (prior month):5.63M
Short % of Float (as of Dec 15, 2015): 4.26%
 
 
 
 
 
 
 
 
 
Note share count reduction.
 
 
 
 
 
 
 
LTD reduction from 2013.Total liabilities nearly cut in half from 2011.
 
 
 
 
 
 
 
 
 
 
Per share values dropped but not near the % drop in share price value from 2011 $46.83 to $7.99
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Enterprise value dropped from 5.141Billion to the current value of 214M! Market cap has dropped but at a smaller decline relative to enterprise value due to significant liability reduction.
 
 
 
 
 
EV/EBIT, EV/Rev P/TB trading at historical low valuations.
 
No Position in APOL

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