Lincoln Educational (LINC)

Education company Lincoln Educational (NASDAQ:LINC) announced better-than-expected revenue in Q1 CY2025, with sales up 13.7% year on year to $117.5 million. The company’s full-year revenue guidance of $490 million at the midpoint came in 1.2% above analysts’ estimates. Its GAAP profit of $0.06 per share was significantly above analysts’ consensus estimates.

Company Overview

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.

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.

Lincoln Educational's primary competitors include Universal Technical Institute (NYSE:UTI), Strayer Education (NASDAQ:STRA), Adtalem Global Education (NYSE:ATGE), and Grand Canyon Education (NASDAQ:LOPE).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Lincoln Educational grew its sales at a 10.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Lincoln Educational’s annualized revenue growth of 13.4% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its number of enrolled students, which reached 15,904 in the latest quarter. Over the last two years, Lincoln Educational’s enrolled students averaged 9.5% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, Lincoln Educational reported year-on-year revenue growth of 13.7%, and its $117.5 million of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 10.6% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Lincoln Educational’s operating margin has shrunk over the last 12 months and averaged 6.3% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, Lincoln Educational generated an operating profit margin of 2.9%, up 3.3 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Lincoln Educational’s EPS grew at a remarkable 17.4% compounded annual growth rate over the last five years, higher than its 10.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Lincoln Educational reported EPS at $0.06, up from negative $0.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Lincoln Educational to perform poorly. Analysts forecast its full-year EPS of $0.39 will hit $0.42.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Over the last two years, Lincoln Educational’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 10.8%, meaning it lit $10.83 of cash on fire for every $100 in revenue.

Lincoln Educational burned through $28.27 million of cash in Q1, equivalent to a negative 24.1% margin. The company’s cash burn was similar to its $16.62 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Lincoln Educational hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 43%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Lincoln Educational’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Lincoln Educational reported $28.66 million of cash and $166.6 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $46.34 million of EBITDA over the last 12 months, we view Lincoln Educational’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $10,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Lincoln Educational blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited it lifted its full-year guidance. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 6.9% to $22.36 immediately following the results.

Updated: July 9, 2025 at 10:46 PM EDT

Before deciding whether to buy Lincoln Educational or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping consumers, but in the case of Lincoln Educational, we’re out. For starters, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its cash burn raises the question of whether it can sustainably maintain growth. On top of that, its operating margins are low compared to other consumer discretionary companies.

Lincoln Educational’s EV-to-EBITDA ratio based on the next 12 months is 11.8x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $25.80 on the company (compared to the current share price of $23.83).