Lincoln Educational Services Corp.

LINC Details

Lincoln Educational Services Corp. (NASDAQ: LINC) provides diversified career-oriented post-secondary education to high school graduates and working adults in the U.S. The company operates primarily under two segments, viz. 1) Transportation and Skilled Trades, which offers academic programs primarily in the career-oriented disciplines of transportation and skilled trades (For Ex. Automotive, Diesel, Welding, and Manufacturing), and 2) Healthcare and Other Professions, which offers academic programs in career-oriented disciplines of health sciences, hospitality, business, and information technology (For Ex. Dental Assistant, Medical Assistant, Arts, and Cosmetology). As of May 17, 2021, the company’s market capitalization stood at USD 197.42 million.

Continuing manufacturing partnership with NASA: On May 05, 2021, the company announced that its students at Mahwah, New Jersey campus, are taking part in collaborative programs with NASA. Students in the advanced manufacturing and robotics career training program use computerized manufacturing equipment to build modules for the International Space Station (ISS). The ISS crew members need IVA handrails to position themselves in zero-gravity environments. Lincoln tech’s students are producing these handrails and will deliver them at the end of this year to NASA.

Q1FY21 Results: The company reported an 11.35% rise in net revenue to USD 77.99 million in Q1FY21 (ending March 31, 2021) compared to USD 70.04 million in Q1FY20 (ending March 31, 2020), primarily driven by a 9.8% increase in the number of students as compared to the prior year. The Transportation and skilled trades contributed 71.37%, while the Healthcare and other professions segment contributed 28.63% of the net sales in Q1FY21. The company increased its operating income to USD 6.01 million in Q1FY21 compared to the operating loss of USD 1.34 million in Q1FY20. The company reported an increase in net income to USD 4.48 million in Q1FY21 compared to the loss of USD 1.75 million in Q1FY20.

Key Risks: The company receives 77% of its revenues from Title IV programs in FY20. The company is required to fulfill extensive regulatory requirements for Title IV programs. Failure to satisfy the Department of Education (DOE) requirements for the program could result in loss of program funding, impacting the company’s financial position.

Outlook: For FY21, the company is projecting its annual sales growth to be in the range of 7% to 12% over FY21. It is estimating its full-year student growth to be around 5% to 10%. Adjusted EBITDA is anticipated to be between USD 32 million to USD 37 million for FY21. The company is also estimating its capital expenditures for the fiscal year to be around USD 7.5 million. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, 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, Thomson Reuters) 

Stock Recommendation: LINC has increased slightly by 0.13% in the past nine months and is currently leaning towards the higher band of the 52-week range of USD 2.56 to USD 8.99. The stock is currently trading above the 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 8.94. On the technical chart, the next support level is USD 6.00. Considering the slight increase in the stock price in the past nine months, strong partnership agreements with NASA, decent fundamentals, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 7.34, up by 0.14% as of May 17, 2021.

* 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.