APOL Is in a Sorry State

The fear manifesting itself in the stock this winter may be justified; recently, four private lenders announced their intention to exit the student loan business. Student loans to Harvard grads may be considered "prime" loans, whereas loans to University of Phoenix grads are closer to the Alt-A or subprime category.

Last quarter, management noted that most financial aid flows through the federal Title IV program, so is essentially low-risk financing. Only 4% of revenue is funded with private loans. If management reiterates this data and can convince investors that there aren't other hidden traps in the financing structure, there is potential for a nice short-covering rally.

The Street is expecting 52 cents EPS on $704 million in revenue, with enrollment growth in the 8% to 10% range. This level of revenue growth should enable the operating leverage story to continue, although analysts will contemplate whether normal holiday break seasonality this quarter is just seasonality or the start of a slowdown.

Investors will want to see some improvement in bachelor program enrollment starts, which are struggling lately. Cannibalization by Axia is a proximate cause. The offset will be Axia graduations into the full University of Phoenix program, so analysts will probe on the retention rate.

The call starts at 5:00 p.m. EDT.

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At the time of publication, Dvorchak had no positions in the stocks mentioned, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.