Lincoln Educational Services Corp.

LINC Details

Lincoln Educational Services Corp. (NASDAQ: LINC) offers a wide range of career-making post-secondary education to high-school graduates and working adults. It currently operates 22 schools in 14 states in the US through the Lincoln Technical Institute, Lincoln College of Technology, Euphoria Institute of Beauty Arts and Science, and the Lincoln Culinary Institute. LINC's business segments (based on focused academic programs) include 1) Transportation and Skilled Trades, and 2) Healthcare and Other Professions (HOPS), with other professions comprising areas such as hospitality, business, and information technology.

Latest News:

• Kindig Academy Launch: On October 27, 2021, LINC announced its plans to launch the Kindig Academy at its Denver campus in early 2022, in partnership with Kindig-It Design's owner Dave Kindig. The focus of the Kindig Academy will be to hone its students' skills in the custom vehicle design and fabrication industry.
• Introducing MAST: On October 13, 2021, the company stated that the Mazda Automotive Student Training (MAST) was presented at its Union, New Jersey campus to cater to the increasing demand for automotive technicians. MAST includes a variety of benefits such as career placement opportunities, one-on-one mentorships with Mazda Master or Senior Certified Techs, discounts on tool kits and Mazda vehicles, and up to USD 15,000 in student tuition reimbursements.

Q2FY21 Results:

• Growth in Revenue: The company reported an uptick of 28.80% in its revenue to USD 80.46 million in Q2FY21 (ended June 30, 2021) from USD 62.47 million in Q2FY20, resulting primarily from a 16.3% increase in the average student population and the normalization of the revenue stream post-COVID-19 related lockdown.
• Improvement in Net Income: Its Q2FY21 net income was USD 2.12 million, 171.01% higher than USD 0.78 million reported in Q2FY20.
• Strong Balance Sheet: LINC exited the quarter with a cash balance of USD 33.01 million and a total debt of USD 16.30 million.

Key Risks:

• Dependence on Title IV Programs: In FY20, the company generated ~77% of its total cash receipts relating to revenues from Title IV programs, which is a significant source of student financing. 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, negatively impacting the company's financials.

Outlook:

• Estimated Revenue Growth: In its Q2FY21 earnings release, LINC stated that its FY21 revenue is expected to witness an annual growth of 9% – 12%, aided by a 5% – 10% growth in student starts.
• EBITDA & CAPEX: Its EBITDA for FY21 is anticipated to range between USD 34.0 – 37.0 million. The estimated capital expenditure for the year is 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 surged 7.24% in the past month and is currently leaning towards the higher-end of the 52-week range of USD 4.42 to USD 8.20. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 62.82. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 7.89.

Considering the slight 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 7.11, up 0.42% as of October 29, 2021, 12:48 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.