Implementing 100 Hybrid Teaching And New Campuses Will Improve Student Attraction And Efficiency

Key Takeaways

• The hybrid teaching model and program expansions are set to drive revenue growth through increased enrollment and operational efficiency.
  
• Financial stability and strategic partnerships support growth and enhance student opportunities and retention, positively impacting revenue and margins.
  
• Regulatory risks and reliance on expansion efforts could impact revenue growth, while cost pressures and program closures may delay profitability and reduce enrollment.

Catalysts

Provides various career-oriented postsecondary education services to high school graduates and working adults in the United States.

• The implementation and expansion of the Lincoln 10.0 hybrid teaching model, which increases flexibility and graduation rates while reducing educational costs, is expected to drive revenue growth and improve net margins by enhancing student attraction and operational efficiency.
  
• The development of new campuses, such as the successful launch of East Point and the upcoming openings in Houston and Levittown, is anticipated to contribute to revenue growth as these campuses target high-demand programs and increase enrollment capacity.
  
• The strategic replication and expansion of high-demand programs at existing campuses are likely to drive revenue growth by optimizing space for more profitable programs and increasing student enrollment in high-return-on-investment (ROI) disciplines.
  
• The increase in corporate partnerships with key industry players aims to provide enhanced training and job placement opportunities, which is expected to translate into higher student enrollment and retention, positively impacting revenue and potentially net margins.
  
• The company's solid financial position, with significant liquidity and no debt, coupled with plans for increased capital expenditure on growth initiatives, is poised to support revenue growth and improve earnings by fueling strategic expansion and program development.

Lincoln Educational Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lincoln Educational Services's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 4.6% in 3 years time.
• Analysts expect earnings to reach $26.2 million (and earnings per share of $0.76) by about March 2028, up from $9.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.8x on those 2028 earnings, down from 47.8x today. This future PE is greater than the current PE for the US Consumer Services industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Lincoln Educational Services Future Earnings Per Share Growth

Risks

• The company faces regulatory risks due to potential turmoil within the Department of Education, which could lead to delays in approving Title IV funds or expansions, impacting education services and cash flow.
  
• The closure of low-ROI programs like Cosmetology and Culinary, while strategic, could reduce enrollment numbers temporarily, affecting revenue growth in the short term.
  
• The reliance on high start growth and new campus openings to achieve financial targets introduces operational risks, potentially impacting revenue if enrollment targets are not met.
  
• Increased operating expenses due to expansion activities, even as Lincoln Tech implements cost efficiencies, could pressure net margins and delay profitability improvements.
  
• The nursing program at the Paramus campus continues to face challenges with regulatory approvals due to NCLEX scores, which could hinder enrollment growth in health care, limiting revenue from this segment.

Valuation

• The analysts have a consensus price target of $22.333 for Lincoln Educational Services based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $566.4 million, earnings will come to $26.2 million, and it would be trading on a PE ratio of 33.8x, assuming you use a discount rate of 7.4%.
• Given the current share price of $14.97, the analyst price target of $22.33 is 33.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.