Lincoln Educational (NASDAQ:LINC) Surprises With Strong Q1, Stock Soars

Radek Strnad /
2024/05/06 8:07 am EDT

Education company Lincoln Educational (NASDAQ:LINC) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 18.4% year on year to $103.4 million. The company's full-year revenue guidance of $423 million at the midpoint also came in 1.8% above analysts' estimates. It made a GAAP loss of $0.01 per share, down from its loss of $0 per share in the same quarter last year.

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Lincoln Educational (LINC) Q1 CY2024 Highlights:

  • Revenue: $103.4 million vs analyst estimates of $97 million (6.6% beat)
  • EPS: -$0.01 vs analyst estimates of -$0.06 ($0.05 beat)
  • The company lifted its revenue guidance for the full year from $415 million to $423 million at the midpoint, a 1.9% increase
  • Gross Margin (GAAP): 58.4%, up from 56.4% in the same quarter last year
  • Enrolled Students: 13,801
  • Market Capitalization: $348.7 million

“We had an exceptionally strong start to 2024 and the momentum generated during the first quarter has continued,” commented Scott Shaw, President & CEO.

Established in 1946, Lincoln Educational (NASDAQ:LINC) is a provider of specialized technical training in the United States, offering career-oriented programs to provide practical skills required in the workforce.

Education Services

A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.

Sales Growth

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Lincoln Educational's annualized revenue growth rate of 8.3% over the last five years was weak for a consumer discretionary business. Lincoln Educational Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Lincoln Educational's annualized revenue growth of 7.7% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.

We can dig even further into the company's revenue dynamics by analyzing its number of enrolled students, which reached 13,801 in the latest quarter. Over the last two years, Lincoln Educational's enrolled students averaged 1.3% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company's monetization of its consumers has risen. Lincoln Educational Enrolled Students

This quarter, Lincoln Educational reported robust year-on-year revenue growth of 18.4%, and its $103.4 million of revenue exceeded Wall Street's estimates by 6.6%. Looking ahead, Wall Street expects sales to grow 6.3% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Lincoln Educational was profitable over the last eight quarters but held back by its large expense base. It's demonstrated subpar profitability for a consumer discretionary business, producing an average operating margin of 6.6%. Lincoln Educational Operating Margin (GAAP)

In Q1, Lincoln Educational generated an operating profit margin of negative 0.4%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Over the next 12 months, Wall Street expects Lincoln Educational to become less profitable. Analysts are expecting the company’s LTM operating margin of 8.6% to decline to 4.3%.

Key Takeaways from Lincoln Educational's Q1 Results

We were impressed by how significantly Lincoln Educational blew past analysts' revenue, operating margin, and EPS expectations this quarter. These beats were driven by more new students than anticipated, and management noted it's seeing stronger demand as the "American public is increasingly questioning the costs and value of a traditional four-year college degree". Given the favorable conditions, management raised its revenue, EBITDA, and adjusted EPS estimates, which beat Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 6% after reporting and currently trades at $11.75 per share.

Lincoln Educational may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.