LINC LINCOLN EDUCATIONAL SERVICES CORPORATION
Sector financial performance:
This company, who primarily provides postsecondary education of professional technician-automotive technician mainly, has been grouped into professional technician-automotive school sector in education industry.
It seems that demand for training for technician, based on our data, has decreased in the past several years as indicated by decline in the new enrollment and total enrollment in companies in this sector, which presents about 9% annual decline between 2015 and 2017. While offset by the slightly increased average tuition (2-4% annually) the revenue has decreased due to the faster decline in enrollment. However, it seems that the decline in enrollment has slowed down since 2017 (4% in 2018 as compared with 9% for previous years). Increase in tuition has slowed down as well.
Pressure resulted from the decreased revenue has been quickly transferred to companies’ profitability causing companies’ margins shrinking or forcing companies to re-structure business by closing the unprofitable programs/campus. At the same time, companies also tried to low their spending on SG&A by saving and cutting expenses. The typical average gross margin and operating margin are 48% and -5% with an average SG&A as percentage of sales of about 52%. There is a signal indicating that loss of cash flow may be being improved in 2018 as a result of further expenses cutting and slowing down pace of declining in enrollment.
According to our analysis, the current companies’ enterprise price/sales ratio is around 0.33 with a debt/asset ratio of 15%.
Enrollments for this company’s postsecondary education service have decreased constantly in the past three years. Most of the decrease in enrollment in the past two years seems to come from a single segment. As the student enrollment declines, revenues also decreases while have been offset by the raised tuition. Due to pulling back in enrollments of some programs (medical), this company changes planned of selling them and put them back in normal operations in 2017 instead of dealing with as discontinued business.
The first six months of fiscal 2018 compared with same period of 2017
Revenue decreased about 3.3% primarily due to suspension of enrollments in its transitional segment offset by increase in other segments (including previous held for sales business).
The fiscal 2017 compared with 2016
Revenue decreased about 9% (excluding discontinued operations) primarily due to suspension of enrollments in its transitional segment.
Fiscal 2016 compared with 2015
Revenue decreased about 5.5% primarily due to decrease in revenue in transitional segment and decrease of about 8% in student enrollments offset by the increase of 2.7% in average tuition fees due to program mix.
Fiscal 2015 compared with 2014
Net sales decreased about 10% primarily due to decrease of about 7% in student enrollments offset by the increase of 2.7% in average tuition fees.
With the continuingly deceased revenue that caused less leverage of fixed expenses it gross margin was down slightly to about 52% in 2016 (excluding discontinued operation). During the same time, the SG&A as percentage of sale increased by about 100 basis points as a result of deleveraging of SG&A expenses with the decreased revenue. Its operating margin actually went up to -0.6% in 2016 (based on 12 months trailing data). After 2017, while margin was down as a result of coming back to normal of discontinued operation, the raised tuition and reduction in expenses and slowing decline in enrollment help offset the decline in margins (about 52% gross margin and -1.5% operating margin in 2018). Cash flow was improved in the first half of 2018.
This stock currently has a companies’ enterprise price/sales ratio of 0.32 ($2.4). We think that its stock is being relatively undervalued considering the potential improvement in enrollment and its leading position and reputation in professional education training service industry with improving economy and job market environment.