By Damion Rallis, Senior Research Associate
On Tuesday, embattled not-for-profit education company Apollo Group Inc. (NASD:APOL) revealed a new set of bleak numbers in its financial results for the first quarter of fiscal 2013, including a decline of 11.7% in operating income from the prior-year first quarter and a decline of 14.3% over the same period in Degreed Enrollment at University of Phoenix. Considering our October 2012 report “Apollo Group Continues Its Freefall,” we can’t say we’re exactly surprised. Then, on Wednesday, the Wall Street Journal reported that the University of Phoenix is expecting sanctions from the Higher Learning Commission, the group that accredits the school. The Commission’s report will recommend putting the school “on notice” for several “areas of concern.” If the school fails its accreditation, the results could be disastrous as accreditation allows schools to be eligible for Title IV student loans from the U.S. Department of Education. For 2012, Apollo Group received more than 80 percent of its revenue from Title IV student loans. The bad news sparked a selloff that saw shares dip 8%; overall, Apollo Group has lost two-thirds of its market cap value over the past year.
At GMI Ratings, we’re running out of areas to downgrade the company.
While the company has managed to keep its environmental nose clean—Apollo Group / University of Phoenix was presented with the Crescordia Award at Valley Forward’s 28th Annual Environmental Excellence Awards program, a competition focusing exclusively on sustainability initiatives—its Litigation Risk Model scores suggest that the company is still an incredibly risky investment. Apollo Group has a 14.3% probability of Class Action Litigation occurring within the next 12 months. This places them in the 1st percentile of all companies in North America, indicating higher shareholder class action litigation risk than 99% of all rated companies in this region.