Nursing Demand Will Drive Future Success Through Campus Expansion And Marketing

Key Takeaways

• Strong demand in nursing and healthcare education is expected to drive revenue growth and improve margins due to a nursing shortage.
  
• Enhanced marketing strategies and campus expansion are projected to boost enrollment, supporting revenue growth and earnings improvement.
  
• Increasing competition, higher costs, and vulnerabilities in revenue streams pose risks to American Public Education's growth, margins, and financial stability.

Catalysts

Provides online and campus-based postsecondary education and career learning in the United States.

• Rasmussen University posted its first year-over-year increase in enrollment since APEI's acquisition, with expectations for continued enrollment growth, which should positively impact future revenue and earnings.
  
• The increasing demand for nursing and healthcare education at both Rasmussen and Hondros is expected to drive revenue growth, margin expansion, and overall financial improvement due to a persistent nursing shortage, leading to positive future earnings catalysts.
  
• APUS (American Public University System) is experiencing a growth in registrations due to improved marketing strategy and increased demand among military families, which is expected to bolster revenue and earnings.
  
• APEI's strategy to expand its nursing campus footprint and to introduce new programs should support future revenue growth and margin improvement due to high demand in the healthcare sector.
  
• Continued cost control and efficiency measures, including IT transition services and efforts to streamline operations, are anticipated to enhance net margins and contribute to future earnings growth.

American Public Education Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming American Public Education's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $48.8 million (and earnings per share of $2.22) by about December 2027, up from $10.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2027 earnings, down from 39.3x today. This future PE is lower than the current PE for the US Consumer Services industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 7.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

American Public Education Future Earnings Per Share Growth

Risks

• Increasing competition in the online education sector could pressure APUS’s revenue growth and margins, given the need for continual investment in marketing and IT infrastructure to maintain its market position.
  
• Rasmussen University's gradual campus closures in Wisconsin and a prior loss in EBITDA present a risk to sustained enrollment growth and financial stability, potentially impacting net margins and earnings.
  
• Higher compensation costs and professional fees have increased total expenses for APEI, which could limit profit margins and restrain earnings growth.
  
• A decline in revenue from Graduate School programs highlights potential vulnerabilities in maintaining diversified revenue streams, risking overall financial performance and earnings.
  
• Although Rasmussen has shown recent enrollment gains, its previous struggles and ongoing transition imply execution risks that could impact revenue growth and net profit margins.

Valuation

• The analysts have a consensus price target of $23.0 for American Public Education based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $20.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $697.1 million, earnings will come to $48.8 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 7.2%.
• Given the current share price of $22.24, the analyst's price target of $23.0 is 3.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.