Apollo (APOL) LBO Analysis Suggests 70-122% Upside - Piper Jaffray

Piper Jaffray analyst, Peter Appert, believes that if Apollo (NASDAQ: APOL) can overcome the legal, regulatory and financial hurdles to complete a sale transaction, the valuation upside could be meaningful. His LBO analysis suggests a potential valuation of $13-$17 per share while a sum-of-parts valuation is $11 to $23. No change to Neutral rating or $9 PT since these hurdles still exist.

Considering an unlevered balance sheet, positive free cash flow and a depressed valuation, LBO values for APOL are intriguing assuming regulatory and legal hurdles can be overcome. A simple LBO model, assuming flat EBITDA beyond CY2018, 2x leverage and a 20% required IRR, yields an implied valuation of $13.

Not surprisingly, valuation is highly sensitive to changes in the key inputs and assuming 3x leverage and 10% EBITDA growth beginning in CY2019, the implied valuation rises to $17. Leverage higher than 2x or 3x is unlikely as it would raise red-flags with DoE and accreditors. However, the implied valuation still suggests meaningful valuation upside.

The market is implying minimal value to APOL's underlying operating assets considering the $6.50/share in net cash balances (excluding restricted cash). This likely undervalues Apollo's businesses, particularly its global portfolio of post-secondary institutions. If you assume a 1x-2x revenue multiple for Apollo Global and 0x-0.5x for University of Phoenix, the implied valuation for APOL is $11 to $23.

For an analyst ratings summary and ratings history on Apollo Education click here. For more ratings news on Apollo Education click here.

Shares of Apollo Education closed at $7.65 yesterday.

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