Lincoln Educational Services: Passing Grade

May.29.08 | About: Lincoln Educational (LINC)

Lincoln Educational Services Corporation (NASDAQ:LINC) provides career-oriented post-secondary education services in the United States. It offers high school graduates and working adults degree and diploma programs in five principal areas of study, which includes automotive technology, health sciences, skilled trades, business and information technology, and spa and culinary.

In early May, the company reported earnings that easily beat expectations. Net income came in at two cents per share, three cents ahead of the consensus. Record revenue of $84.0 million for the first quarter of 2008 was an increase of 10.3% from $76.2 million for the first quarter of 2007. New student starts were strong as well, growing 7.5%.

We feel the stock has been unfairly punished and is ripe for a rebound. It is down over 20% year-to-date, which his inconsistent with its strong fundamentals. Clearly there has been concern over the environment for student lending, but management stated that it hasn’t noticed any impact on its new student starts.

Additionally, the President signed recent legislation (H.R. 5715) designed to alleviate the current student-lending credit crunch. The bill increases unsubsidized Stafford loan limits by $2,000 annually, increases aggregate loan limits, and authorizes the Secretary of Education to purchase FFEL loans from student lenders.

One note of caution is that the volume on the stock is quite thin at about 20,000 shares daily. Investors with a longer term horizon shouldn’t be concerned with this however. The fundamentals support a higher stock price. We see the stock in the $16 range in a year.

Suggested Stop: $11.42