Book Profits on This Small-Cap Education Services Stock – LINC

Feb 24, 2022 12:00 AM PST | Team Kalkine
Book Profits on This Small-Cap Education Services Stock – LINC


Lincoln Educational Services Corp.

Lincoln Educational Services Corp. (NASDAQ: LINC) offers post-secondary education to high-school graduates and working adults. It operates 22 schools in 14 states under four brands: Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Science. Its operating segments are 1) Transportation and Skilled Trades, which delivers academic programs in the disciplines of transportation and skilled trades, and 2) Healthcare and Other Professions (HOPS), which offers academic programs in the areas of hospitality, healthcare, business, and information technology.

Why Should Investors Book Profit?

  • Double Digit Growth in Revenue: The company reported an YoY growth of 13.03% in its revenues to USD 89.06 million in Q3FY21 (ended September 30, 2021) from USD 78.79 million in Q3FY20, attributable to an increase in average student population and average revenue per student.
  • Weak Margin Profile: In Q3FY21, LINC’s reported EBITDA margin was 8.6% vs. the industry median of 17.1% and reported net margin of 4.3% in the period under consideration which was lower than the 56.3% reported in the previous financial year.
  • Inflationary pressures on certain instructor salaries: In the lates quarterly report the company has stated that they are witnessing an inflationary pressure on instructor salaries due to widespread instructor shortages in addition to a larger student population, which also drove books and tools expense
  • Reliance on Title IV Programs: Title IV programme revenues, which are a significant source of student funding, contributed 77% of the company's total cash earnings in FY20. The corporation must follow the Department of Education's (DOE) stringent Title IV programme regulatory standards; failure to do so could result in the loss of programme money, detrimental to the company's bottom line.

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.

Stock Recommendation:

LINC's share price has inclined 13.97% in the past six months and is currently leaning towards the higher band of the 52-week range of USD 5.25 to USD 8.20. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 6.26.

Considering the company's growth in revenue, declining margin profile, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 7.26, up 0.28% as of February 23, 2022, at 10:21 AM ET.

Three-Year Technical Price Chart (as of February 23, 2022, at 10:21 AM ET). Analysis by Kalkine Group

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

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