Lincoln Education is Our Featured Stock of the Week

There’s a major crisis brewing in the economy that few are talking about. Essentially, we are failing to produce enough workers in sufficient numbers for key industries.

And, we are already experiencing the impact of a tight labor market in low doses whether it’s in rising prices, worse service, and businesses that are unable to operate at full capacity. If we project current economic trends into the future, we will have shortages in critical industries that are essential for the functioning of the economy.

One is healthcare workers. The need for these whether it's doctors, nurses, or aides is especially acute in rural areas and for at-home care. People having to care for a disabled or ill family member is another reason that the labor force participation rate remains low relative to historical standards. 

Another area of need is workers in skilled trades. These workers are getting older at a rapid rate. Now, the average age for a tradesman is 55. With many nearing retirements, there is not enough new workers who are replacing them.  

Our featured stock of the week, Lincoln Education (LINC) is one company that is working to solve this problem. It also offers an attractive valuation, and the pandemic has led to higher margins. 

Read on to find out why the future is so bright for LINC…

Company Background

LINC is a provider of vocational education for high school graduates and working adults in the United States. As of January 2021, the company has 22 campuses with about 14,000 enrolled students.

It was established after World War 2 to provide returning veterans with career-specific skills and training such as A/C repair and installations, refrigeration,, and automotive courses. From there, the company expanded and offered traveling schools across the country. 

For many decades, the for-profit education industry was in growth mode due to the rising cost of college tuition. Additionally, colleges and universities were not equipped to retrain older workers for new roles especially as technology and outsourcing disrupted many occupations.

However, the industry’s growth attracted unscrupulous companies which took advantage of federally subsidized loans to recruit students with faulty promises. The end result was a harsh crackdown on the industry which led investors to flee the sector. LINC had to change its recruiting practices and streamline its operations. 

Value

The situation has dramatically changed for LINC since these events. Most companies in the sector went bankrupt and were liquidated, leading to much lower competition.

Demand remains strong and should increase with inflation which means that workers are looking for ways to increase their income. Yet, most institutional investors understandably shy away from the sector due to bad scars from the past decade.

This is creating an opportunity for investors as the operating environment has significantly improved, and this is not reflected in its valuation as the company has a forward P/E of 10.7. 

It should also see margin expansion as the company has been able to increase capacity by using a hybrid approach, combining remote and in-person classes.

Earnings

These improvements are reflected in LINC’s last earnings report in which the company reported $0.73 per share in earnings which topped consensus expectations of $0.24 per share. It was also a significant improvement from last year’s $0.11 per share profit. Revenue also beat expectations at $87.8 billion vs $86.9 billion. 

However, the company’s earnings were unusually higher due to the sale of some of its properties. Next year, analysts are forecasting $0.60 per share in full-year earnings, and this is expected to increase by 12% in 2023. Revenue is expected to trend higher and reach $374 million in 2023 which would be its highest in a decade.  

POWR Ratings

The POWR Ratings are also quite bullish on LINC as it’s rated an A which translates to a Strong Buy. A-rated stocks have posted an average performance of 31.1% which compares favorably to the S&P 500’s average annual gain of 8%. 

LINC also has strong component grades across the board including an A for Value and an A for Sentiment. Its forward P/E is almost half that of the S&P 500. Additionally, all 3 Wall Street analysts covering the stock have a Buy rating with a consensus price target of $11.8, which implies a more than a 65% upside. Click here to see LINC’s complete POWR Ratings.

LINC shares were unchanged in premarket trading Tuesday. Year-to-date, LINC has declined -7.36%, versus a -9.50% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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