J.P. Morgan Reiterates Overweight Rating on Apollo Group (APOL)

J.P. Morgan is out with a research report this morning, where it reiterated its Overweight rating on shares of Apollo Group (NASDAQ: APOL); it has an $85.00 price target on the stock.

The JPM analysts said, “Yesterday after the close, Apollo reported a solid 3QF10 (May) EPS of $1.74, above our estimate. Healthy performance within the bachelors’ programs was offset by planned selectivity in associates’ enrollments. That said, the accelerated rollout of the online orientation program will water down APOL's F2011 results (to high single-digit revenue growth and flat EBIT growth), implying ~130 bps margin contraction. Importantly, mgmt reiterated its long-term growth targets.”

They added, “We consider resolution of the Education Department’s (ED) gainful employment proposal to be a much more meaningful catalyst for APOL (and the sector) in 2010 than a modest margin contraction. In addition, we believe higher level of investments in academics and student success positions the company well in light of the current regulatory/legislative scrutiny.”

The JPM analysts also noted, “3QF10 bad debt grew ~200 bps y/y (to 5.4% of revs) but was ~150 bps down seq. and should ebb going forward. Other concerns included slightly lower student persistence, ongoing drag from BPP, CDR slippage, and the continuing uncertainty of the SEC inquiry on revenue recognition.”