Shares of Apollo Education Group (APOL, $32.09, down $3.07) are down 9% today following mixed earnings. The company reported a profit of $0.28 a share on revenue of $679 million versus expectations for $0.19 a share on revenue of $689 million.
The beat on earnings was due to some special-items but the miss on revenue was more significant. Looking forward, Apollo is expecting full-year revenue for 2014 to come in at $3-$3.1 billion versus expectations in between these numbers.
The bigger news is that Apollo’s University of Phoenix subsidiary was served with a subpoena from the US Department of Education.
We have talked about Apollo’s skeletons in the closet and have always been bearish on the stock. We specifically mentioned their “boiler room” tactics from years ago and we have said the Education stocks are in a bubble. With student-debt approaching $1 trillion with a “T”, the sector is overvalued and we have been waiting for the perfect opportunity to go short some of the names in the game.
The zombies from the education department are looking into Apollo’s marketing, recruitment, enrollment and financial aid processing as part of their investigation. Better late than never as we have been warning of the company’s shenanigans for years.
Here were our thoughts from our Earnings section from Sunday’s Weekly Wrap (quotes from 3/28/14):
“Apollo Education Group (APOL, $32.85, up $0.45)
April 35 calls (APOL140419C00035, $1.15, up $0.18)
April 30 puts (APOL140419P00030000, $0.90, down $0.10)
Thoughts: The stock we love to hate. Shares often move 10% or more and while we are bearish on the stock, shares seem to hang above $30. We have listed a possible strangle option trade but we will likely sit for this earnings session.” (END)
We looked at a possible earnings trade but we didn’t like the setup and shares have trended higher on recent earnings announcements. With April options expiring in less than 3 weeks, the premiums were also expensive and overinflated.
The April 35 calls (APOL140419C00035, $0.15, down $1.92) closed north of $2 and had nearly doubled going into yesterday’s close but are down over 90% today.
Meanwhile , the April 30 puts (APOL140419P00030000, $0.35, down $0.05) are trading lower despite the stock’s nasty drop.
As you can see, the premiums in both the calls and puts have been deflated following the news. We will keep Apollo on our Watch List as there will be a day when the opportunity will be there for us to go short.
As far as the market, the bulls are up but there has been some weakness.
The Dow is advancing 14 points to 16,546 while the S&P 500 is higher by 4 points to 1,889. The Nasdaq is gaining 3 points to 4,271 and the Russell 2000 is up 2 points to 1,191.
We have a lot to cover inside our Members Area, including of first 2 Profit Alerts for the month. We could have additional trades today for both our Daily and Weekly Wrap but we wanted to get this update out before getting into new positions. Stay locked-and-loaded over the next hour or so as there is a good chance you hear from us again. For now, let’s go ring the register.