Intrinsic value of Lincoln Educational Services - LINC

Previous Close

$3.13

  Intrinsic Value

$0.40

stock screener

  Rating & Target

str. sell

-87%

  Value-price divergence*

-144%

Previous close

$3.13

 
Intrinsic value

$0.40

 
Up/down potential

-87%

 
Rating

str. sell

 
Value-price divergence*

-144%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LINC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -5.29
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  197
  201
  206
  211
  217
  223
  231
  238
  247
  256
  266
  276
  288
  300
  312
  326
  340
  355
  371
  388
  406
  425
  444
  465
  487
  511
  535
  561
  588
  616
  646
Variable operating expenses, $m
 
  39
  40
  41
  42
  43
  44
  46
  47
  49
  51
  51
  53
  56
  58
  60
  63
  66
  69
  72
  75
  79
  82
  86
  90
  95
  99
  104
  109
  114
  120
Fixed operating expenses, $m
 
  170
  174
  179
  183
  188
  193
  197
  202
  207
  212
  218
  223
  229
  235
  240
  246
  253
  259
  265
  272
  279
  286
  293
  300
  308
  315
  323
  331
  340
  348
Total operating expenses, $m
  202
  209
  214
  220
  225
  231
  237
  243
  249
  256
  263
  269
  276
  285
  293
  300
  309
  319
  328
  337
  347
  358
  368
  379
  390
  403
  414
  427
  440
  454
  468
Operating income, $m
  -5
  -8
  -8
  -9
  -8
  -7
  -6
  -5
  -3
  0
  3
  7
  11
  15
  20
  25
  31
  37
  43
  51
  59
  67
  76
  86
  97
  108
  120
  133
  147
  162
  178
EBITDA, $m
  6
  0
  -1
  0
  0
  1
  3
  4
  7
  9
  12
  16
  20
  25
  30
  35
  41
  48
  55
  63
  71
  80
  90
  101
  112
  124
  137
  151
  166
  182
  198
Interest expense (income), $m
  5
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
Earnings before tax, $m
  -4
  -11
  -12
  -12
  -12
  -11
  -11
  -9
  -8
  -6
  -3
  1
  4
  8
  12
  16
  21
  27
  32
  39
  46
  54
  62
  71
  80
  91
  102
  114
  126
  140
  154
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  4
  6
  7
  9
  11
  12
  14
  17
  19
  22
  24
  27
  31
  34
  38
  42
Net income, $m
  -28
  -11
  -12
  -12
  -12
  -11
  -11
  -9
  -8
  -6
  -3
  1
  3
  6
  9
  12
  15
  19
  24
  28
  34
  39
  45
  52
  59
  66
  74
  83
  92
  102
  113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  163
  145
  148
  152
  156
  161
  166
  172
  178
  185
  192
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  306
  320
  336
  351
  368
  386
  404
  424
  444
  466
Adjusted assets (=assets-cash), $m
  142
  145
  148
  152
  156
  161
  166
  172
  178
  185
  192
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  306
  320
  336
  351
  368
  386
  404
  424
  444
  466
Revenue / Adjusted assets
  1.387
  1.386
  1.392
  1.388
  1.391
  1.385
  1.392
  1.384
  1.388
  1.384
  1.385
  1.387
  1.391
  1.389
  1.387
  1.387
  1.388
  1.387
  1.384
  1.386
  1.386
  1.389
  1.388
  1.384
  1.387
  1.389
  1.386
  1.389
  1.387
  1.387
  1.386
Average production assets, $m
  62
  63
  64
  66
  68
  70
  72
  74
  77
  80
  83
  86
  90
  93
  97
  102
  106
  111
  116
  121
  127
  132
  139
  145
  152
  159
  167
  175
  183
  192
  202
Working capital, $m
  -1
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
Total debt, $m
  42
  32
  34
  37
  40
  43
  46
  50
  54
  59
  64
  69
  74
  80
  86
  93
  100
  107
  115
  123
  132
  141
  151
  161
  172
  183
  195
  207
  220
  234
  249
Total liabilities, $m
  108
  98
  100
  103
  106
  109
  112
  116
  120
  125
  130
  135
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  217
  227
  238
  249
  261
  273
  286
  300
  315
Total equity, $m
  55
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
Total liabilities and equity, $m
  163
  145
  148
  152
  157
  161
  166
  172
  178
  185
  192
  200
  207
  216
  225
  235
  245
  256
  268
  280
  293
  306
  321
  336
  352
  368
  386
  404
  423
  444
  466
Debt-to-equity ratio
  0.764
  0.680
  0.710
  0.750
  0.780
  0.820
  0.860
  0.900
  0.940
  0.980
  1.020
  1.060
  1.100
  1.140
  1.180
  1.220
  1.260
  1.290
  1.330
  1.360
  1.390
  1.420
  1.450
  1.480
  1.510
  1.530
  1.560
  1.580
  1.610
  1.630
  1.650
Adjusted equity ratio
  0.239
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -28
  -11
  -12
  -12
  -12
  -11
  -11
  -9
  -8
  -6
  -3
  1
  3
  6
  9
  12
  15
  19
  24
  28
  34
  39
  45
  52
  59
  66
  74
  83
  92
  102
  113
Depreciation, amort., depletion, $m
  11
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
Funds from operations, $m
  -26
  -3
  -4
  -4
  -4
  -3
  -2
  0
  1
  4
  6
  9
  12
  15
  18
  22
  26
  30
  35
  41
  46
  52
  59
  66
  74
  82
  91
  100
  111
  121
  133
Change in working capital, $m
  -20
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
Cash from operations, $m
  -6
  -3
  -4
  -4
  -3
  -3
  -2
  0
  2
  4
  7
  10
  12
  16
  19
  23
  27
  31
  36
  41
  47
  53
  60
  67
  75
  83
  92
  102
  112
  123
  134
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
New CAPEX, $m
  -4
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -2
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -13
  -13
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -22
  -24
  -25
  -25
  -27
  -28
Free cash flow, $m
  -8
  -10
  -11
  -12
  -12
  -11
  -11
  -10
  -8
  -6
  -4
  -2
  0
  3
  6
  9
  12
  16
  20
  25
  29
  35
  41
  47
  54
  61
  69
  77
  86
  96
  106
Issuance/(repayment) of debt, $m
  -3
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
Issuance/(repurchase) of shares, $m
  0
  12
  13
  13
  13
  13
  12
  11
  10
  8
  6
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -9
  14
  15
  16
  16
  16
  16
  15
  14
  12
  11
  7
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
Total cash flow (excl. dividends), $m
  -17
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  5
  6
  9
  12
  15
  19
  23
  28
  33
  38
  44
  50
  57
  64
  72
  81
  90
  99
  109
  120
Retained Cash Flow (-), $m
  26
  -12
  -13
  -13
  -13
  -13
  -12
  -11
  -10
  -8
  -6
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Prev. year cash balance distribution, $m
 
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1
  -9
  -9
  -9
  -8
  -7
  -6
  -4
  -2
  1
  3
  3
  6
  9
  12
  16
  20
  24
  29
  34
  40
  46
  52
  59
  67
  75
  84
  93
  103
  113
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1
  -8
  -8
  -7
  -6
  -5
  -4
  -3
  -1
  0
  1
  1
  2
  3
  4
  4
  4
  4
  4
  4
  4
  4
  3
  3
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  84.5
  70.8
  59.3
  49.8
  42.2
  36.2
  31.5
  28.1
  25.6
  24.0
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5
  23.5

Lincoln Educational Services Corporation, together with its subsidiaries, provides various career-oriented post-secondary education services in the United States. It offers bachelor's degree, associate's degree, and diploma and certificate programs in automotive technology, skilled trades, healthcare services, hospitality services, and business and information technology areas to recent high school graduates and working adults. The company operates 31 schools in 15 states under the Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences brand names. Lincoln Educational Services Corporation was founded in 1946 and is based in West Orange, New Jersey.

FINANCIAL RATIOS  of  Lincoln Educational Services (LINC)

Valuation Ratios
P/E Ratio -2.8
Price to Sales 0.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow -12.9
Price to Free Cash Flow -7.8
Growth Rates
Sales Growth Rate -5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate -10.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 54.5%
Total Debt to Equity 76.4%
Interest Coverage 0
Management Effectiveness
Return On Assets -11.7%
Ret/ On Assets - 3 Yr. Avg. -9.9%
Return On Total Capital -23.9%
Ret/ On T. Cap. - 3 Yr. Avg. -18.4%
Return On Equity -41.2%
Return On Equity - 3 Yr. Avg. -31.3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 51.8%
Gross Margin - 3 Yr. Avg. 52.3%
EBITDA Margin 6.1%
EBITDA Margin - 3 Yr. Avg. 6.9%
Operating Margin -2.5%
Oper. Margin - 3 Yr. Avg. -1.7%
Pre-Tax Margin -2%
Pre-Tax Margin - 3 Yr. Avg. -3.3%
Net Profit Margin -14.2%
Net Profit Margin - 3 Yr. Avg. -14.4%
Effective Tax Rate -25%
Eff/ Tax Rate - 3 Yr. Avg. -6.3%
Payout Ratio 0%

LINC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LINC stock intrinsic value calculation we used $197 million for the last fiscal year's total revenue generated by Lincoln Educational Services. The default revenue input number comes from 2016 income statement of Lincoln Educational Services. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LINC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LINC is calculated based on our internal credit rating of Lincoln Educational Services, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lincoln Educational Services.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LINC stock the variable cost ratio is equal to 19.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $166 million in the base year in the intrinsic value calculation for LINC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 10.2% for Lincoln Educational Services.

Corporate tax rate of 27% is the nominal tax rate for Lincoln Educational Services. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LINC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LINC are equal to 31.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Lincoln Educational Services operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LINC is equal to -5.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $55 million for Lincoln Educational Services - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 24.859 million for Lincoln Educational Services is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lincoln Educational Services at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

Stock chart of LINC Financial statements of LINC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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