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small-cap

Earnings Update on This Small-Cap Education Services Stock – LINC

Dec 14, 2021 | Team Kalkine
Earnings Update on This Small-Cap Education Services Stock – LINC

Lincoln Educational Services Corp.

LINC Details

Lincoln Educational Services Corp. (NASDAQ: LINC) offers post-secondary education to recent high school graduates and working adults. Automotive technology, skilled trades, healthcare services, hospitality services, and information technology are among the disciplines offered by the company, which has 22 schools in 14 states. Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences are the brand names used by the company.

Latest News:

  • NCCER Accreditation: The National Center for Construction Education and Research (NCCER) granted LINC's welding program accreditation at its South Plainfield, New Jersey campus on December 09, 2021. NCCER accredits construction-related career training courses, and the company's Welding and Metal Fabrication Technology program was deemed to meet the foundation's demanding requirements.
  • Strengthening Balance Sheet: On November 02, 2021, LINC stated that it had completed the sale and lease-back transactions of its Denver, Colorado and Grand Prairie, Texas, properties for a total of USD 46.5 million. It also signed a 20-year triple-net lease arrangement with renewal options for each site. Due to the sale, the company expects to record a gain on sale of approximately USD 22 million in Q4FY21. The mergers and acquisitions were first disclosed in late September.

9MFY21 Results:

  • Progress in Revenue: The company reported an increase of 17.14% in its revenues to USD 247.52 million during 9MFY21 (ended September 30, 2021) from USD 211.30 million during 9MFY20, due to an increase in average student population and average revenue per student.
  • Boost in Net Income: LINC witnessed an increase in net income to USD 10.75 million during 9MFY21 vs. USD 2.55 million during 9MFY20.
  • Strong Balance Sheet: It exited the quarter with a cash balance of USD 47.15 million and a total debt of USD 15.85 million.

Key Risks:

  • Reliance on Title IV Programs: Revenues from Title IV programs, a significant source of student funding, accounted for 77% of the company's total cash earnings in FY20. The business must adhere to the Department of Education's (DOE) rigorous Title IV program regulatory standards; failure to do so could result in the loss of program funds, which would harm the company's financials.

Outlook:

  • Estimated Revenue Growth: In its Q3FY21 press release, LINC stated that its FY21 revenue is expected to witness an annual growth of 12 – 14%, aided by a 7 – 8% growth in student starts.
  • EBITDA & CAPEX Estimates: Its adjusted EBITDA for FY21 is anticipated to range between USD 35.0 – 37.0 million. The estimated capital expenditure for the year is around USD 7.5 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LINC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

LINC's stock price has surged 25.00% in the past three months and is currently leaning towards the higher-end of the 52-week range of USD 5.25 to USD 8.20. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 58.79. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 8.00.

Considering the uptick in the stock price, strong top and bottom-line performance, decent balance sheet, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 7.65, down 2.67% as of December 13, 2021, 12:11 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.