Lincoln Educational Services Corp.

LINC Details

Lincoln Educational Services Corp. (NASDAQ: LINC) offers diversified career-related post-secondary education to high-school graduates and working adults in the United States. The company works principally in two areas: 1) Transportation and Skilled Trades, which mainly offers academic programs in the disciplines of transportation and skilled trades (e.g., Automotive, Diesel, Welding and Manufacturing), and 2) Healthcare and Other Professions, offering academic programs in the fields of the hospitality, healthcare, business and other professions (e.g., Dental Assistant, Medical Assistant, Arts, and Cosmetology).

LINC Campuses (Source: Investor Presentation, Q1FY21)

Launched Mazda Automotive Student Training (MAST): LINC announced the introduction of the MAST program this summer at the campus of Columbia, Maryland, on July 14, 2021. Automotive technology students can add the Mazda option to their program and build up professional skills for Mazda technologies. This program is designed to fulfill the growing demands of automotive technicians.

Q1FY21 Results: The company reported an 11.35% rise in net revenue to USD 78.00 million in Q1FY21 (ended March 31, 2021) compared to USD 70.04 million in Q1FY20, primarily driven by a 9.8% increase in the number of students as compared to the prior year. The company reported an increase in net income to USD 4.49 million in Q1FY21 vs the loss incurred of USD 1.75 million in Q1FY20. As of March 31, 2021, LINC’s cash and cash equivalents amounted to USD 26.74 million with a total debt of USD 16.76 million.

Key Risks: LINC generated 77% and 78% of its revenue under Title IV programs during FY20 and FY19, respectively. The company is required to comply with the comprehensive Title IV program regulatory requirements set by the Department of Education (DOE), failing which may result in loss of program funding, affecting the company's financial situation.

Outlook: For FY21, LINC expects its annual sales to increase by 7-12% compared to FY20, with estimated student growth to be around 5-10%. Adjusted EBITDA is anticipated to be between USD 32 million and USD 37 million. Furthermore, the company estimates its capital expenditure to be around USD 7.5 million for FY21.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E 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 share price has fallen by 7.64% in the past one month and is currently leaning towards the higher-band of the 52-week range of USD 3.95 to USD 8.99. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 35.05. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 8.59. On the technical chart, the next support level is USD 5.90. Considering the company’s robust track record and outlook, strong profitability margins, balance sheet strength, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 7.14, down by 0.43% as of July 13, 2021, at 03:12 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.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.