A great university, but an even better stock. Why? American Public University System (APUS), wholly owned by American Public Education, Inc. (APEI), makes a strong case for leadership in its segment by providing online programs to address critical challenges in higher education. As America faces the dual challenges of reining in crippling tuition costs while significantly increasing the number of college graduates receiving a quality education, APUS has found a business model that seems to accomplish both goals.
During the February 17th shareholder call with APEI, I was again impressed with management's credible commitment to expanding access to affordable, quality education, which should benefit students as well as shareholders. The school continues to invest in academics, and is a recognized segment leader in both the measurement and reporting of student learning outcomes. At the same time, they have held undergraduate tuition flat for a decade and also provided an undergraduate book grant, while public four year institutions have increased the cost of attendance by roughly 49%, according to the American Council on Education. That emphasis on "cost containment" alone is certainly worthy of attention.
In common with many other online universities, APUS is leveraging today's technology to expand access to education, particularly for adult and other non-traditional learners; however, APUS in contrast seems to have avoided some of the pitfalls that have brought government scrutiny to many of its peers in the "for profit" category, such as providing misleading recruiting information or burdening students with excessive debt, with questionable academic results. One of the things that helps to set APUS apart is its heritage and culture of being customer driven, and agility in quickly responding to changing market needs, coupled with management's focus on managing for long term results.
No Short Shrift for APUS
For those who are more discerning about the differences among institutions, rather than grouping all players within the "for profit" or online sectors together by default, don't give APUS short shrift. And, in particular, I think it is incumbent upon policy makers to take a second look. As government spending continues to spiral out of control, it is encouraging to see that there is a market-based model that is actually a tax paying institution, rather than a government supported institution, helping to address one of our national priorities -- universal education
But why am I so impressed with APUS as opposed to the other online or" tax-paying" (aka "for profit") options? It starts with the company's roots.
APUS was founded with a strong vision for the future. By having successfully focused on educating military students first, and then, extending their pacesetting academic programs and accessible educational model to a broader array of public service professionals and working adults, APUS has adroitly defined just what it means to offer a quality product at an affordable price. Ever true to the needs and culture of their military constituency, APUS offers students both affordability and flexibility across a number of degree programs that, I expect, will continue to attract a growing number of military and civilian students, especially during this period of high economic uncertainty.
In terms of student value, often brick-and-mortar colleges devote significant student resources to campus upkeep, athletic programs, other cultural activities as well as to academic research. But at many online universities like APUS, resources are focused on academics and teaching students. These schools can hire outstanding faculty members from around the world, many of whom have real-life experience in the fields they are teaching, and reinvest resources directly back into maximizing student value.
As a market driven institution, APUS and some other institutions in this "tax paying" sector can respond more readily to the changing needs of their constituents, than can a traditional institution bound by bureaucracy and tenured faculty.
APUS has evolved over the years. Apart from just educating military applicants, the school now also serves other public service professionals, including police officers, firefighters, emergency management professional and national security personnel, among others. Today, the university offers 79 master's, bachelors', and associate degree programs, as well as certificate programs, to more than 83,000 working adults.
Partnership with Walmart
APUS partnered with Walmart (WMT) to make their degrees more applicable to the Walmart associates' educational needs. APUS developed a retail management concentration toward an Associate's Degree or Bachelor of Arts, Management program. APUS added courses such as Retail Strategy and Retail Innovation and combined them with existing offerings such as Supply Chain Management to create a relevant and focused concentration. This is a good example of the agility of these types of institutions, to respond to current educational needs of today's workforce.
And because keeping costs low is critical in serving the military -- who have tuition reimbursement limits -- APUS has not raised undergraduate tuition in a decade. This also benefits the many other civilian and public service students, reducing the likelihood that they will take on too much debt -- another critical issue facing higher education. In fact, the annual cost for a full time undergraduate -- including tuition, fees and course materials -- is 8% less at APUS than the average in-state levels at public universities.
The school attracts students primarily through referrals, which helps it maintain a very high student satisfaction rate. More than 90% of alumni surveyed would recommend the school to family, friends or coworkers. And according to CEO Wallace Boston, "More than 40% of our graduates return for a second degree." These metrics clearly illustrate that APUS alumni were pleased with their university experience, and that they recognize the value and quality of the academic programs.
I am confident that the company's earnings will continue to grow. Well-informed investors should pay attention to quality private-sector colleges and universities like APUS.
12-month price target: $50.
Hilary Kramer is the editor of GameChangerStocks.com, a newsletter that features stocks that Kramer believes have unusually good opportunities ahead.