Intrinsic value of Lincoln Educational Services Corporation - LINC

Previous Close

$3.20

  Intrinsic Value

$3.62

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  Rating & Target

hold

+13%

Previous close

$3.20

 
Intrinsic value

$3.62

 
Up/down potential

+13%

 
Rating

hold

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 0001), $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
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  274
  285
  297
  309
  323
  337
  352
  368
  385
  403
  421
  441
  462
  484
  507
  531
  557
  584
  612
  642
  673
  706
  740
  777
  815
  855
  897
  942
  988
  1,037
Variable operating expenses, $m
  139
  145
  151
  157
  164
  171
  179
  187
  196
  205
  212
  222
  233
  244
  256
  268
  281
  294
  309
  324
  339
  356
  373
  392
  411
  431
  453
  475
  498
  523
Fixed operating expenses, $m
  139
  142
  145
  148
  152
  155
  158
  162
  165
  169
  173
  177
  180
  184
  188
  193
  197
  201
  206
  210
  215
  220
  224
  229
  234
  239
  245
  250
  256
  261
Total operating expenses, $m
  278
  287
  296
  305
  316
  326
  337
  349
  361
  374
  385
  399
  413
  428
  444
  461
  478
  495
  515
  534
  554
  576
  597
  621
  645
  670
  698
  725
  754
  784
Operating income, $m
  -5
  -2
  0
  3
  7
  11
  15
  19
  24
  29
  36
  42
  48
  55
  63
  71
  79
  88
  98
  108
  119
  130
  143
  156
  170
  184
  200
  217
  234
  253
EBITDA, $m
  4
  7
  10
  14
  18
  22
  26
  31
  36
  42
  48
  55
  62
  69
  77
  86
  95
  105
  115
  126
  138
  150
  164
  178
  193
  209
  226
  244
  262
  282
Interest expense (income), $m
  5
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
Earnings before tax, $m
  -8
  -5
  -3
  0
  3
  7
  10
  14
  19
  24
  30
  36
  42
  48
  55
  63
  71
  79
  88
  98
  108
  119
  130
  143
  156
  170
  185
  200
  217
  235
Tax expense, $m
  0
  0
  0
  0
  1
  2
  3
  4
  5
  6
  8
  10
  11
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  39
  42
  46
  50
  54
  59
  63
Net income, $m
  -8
  -5
  -3
  0
  2
  5
  8
  11
  14
  17
  22
  26
  31
  35
  40
  46
  52
  58
  64
  71
  79
  87
  95
  104
  114
  124
  135
  146
  158
  171

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  152
  158
  165
  172
  179
  187
  195
  204
  214
  224
  234
  245
  256
  269
  281
  295
  309
  324
  340
  356
  374
  392
  411
  431
  453
  475
  498
  523
  549
  576
Adjusted assets (=assets-cash), $m
  152
  158
  165
  172
  179
  187
  195
  204
  214
  224
  234
  245
  256
  269
  281
  295
  309
  324
  340
  356
  374
  392
  411
  431
  453
  475
  498
  523
  549
  576
Revenue / Adjusted assets
  1.803
  1.804
  1.800
  1.797
  1.804
  1.802
  1.805
  1.804
  1.799
  1.799
  1.799
  1.800
  1.805
  1.799
  1.804
  1.800
  1.803
  1.802
  1.800
  1.803
  1.799
  1.801
  1.800
  1.803
  1.799
  1.800
  1.801
  1.801
  1.800
  1.800
Average production assets, $m
  61
  63
  66
  69
  72
  75
  78
  82
  85
  89
  94
  98
  103
  107
  113
  118
  124
  130
  136
  142
  149
  157
  164
  172
  181
  190
  199
  209
  219
  230
Working capital, $m
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -62
  -65
  -69
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -106
Total debt, $m
  53
  58
  62
  67
  73
  79
  85
  91
  98
  105
  113
  121
  129
  138
  147
  157
  167
  178
  190
  202
  214
  228
  242
  256
  272
  288
  305
  323
  342
  361
Total liabilities, $m
  110
  115
  120
  125
  130
  136
  142
  149
  155
  162
  170
  178
  186
  195
  205
  214
  225
  236
  247
  259
  272
  285
  299
  314
  329
  345
  362
  380
  399
  419
Total equity, $m
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  84
  88
  93
  97
  102
  107
  112
  118
  124
  130
  136
  143
  150
  157
Total liabilities and equity, $m
  151
  158
  165
  172
  179
  187
  195
  205
  213
  223
  234
  245
  256
  268
  282
  295
  309
  324
  340
  356
  374
  392
  411
  432
  453
  475
  498
  523
  549
  576
Debt-to-equity ratio
  1.280
  1.330
  1.390
  1.440
  1.490
  1.540
  1.590
  1.630
  1.680
  1.720
  1.760
  1.800
  1.840
  1.880
  1.920
  1.950
  1.980
  2.010
  2.040
  2.070
  2.100
  2.130
  2.150
  2.180
  2.200
  2.220
  2.240
  2.260
  2.280
  2.300
Adjusted equity ratio
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  -5
  -3
  0
  2
  5
  8
  11
  14
  17
  22
  26
  31
  35
  40
  46
  52
  58
  64
  71
  79
  87
  95
  104
  114
  124
  135
  146
  158
  171
Depreciation, amort., depletion, $m
  9
  10
  10
  10
  11
  11
  12
  12
  12
  13
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Funds from operations, $m
  2
  4
  7
  10
  13
  16
  19
  23
  26
  30
  34
  39
  44
  49
  55
  61
  67
  74
  82
  90
  98
  107
  116
  126
  137
  148
  160
  173
  186
  201
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from operations, $m
  3
  5
  8
  12
  14
  17
  21
  24
  28
  32
  36
  41
  46
  51
  57
  63
  70
  77
  85
  93
  101
  110
  120
  130
  141
  152
  165
  178
  191
  206
Maintenance CAPEX, $m
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
New CAPEX, $m
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -18
  -18
  -19
  -19
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -36
  -37
  -39
Free cash flow, $m
  -7
  -5
  -2
  0
  3
  5
  8
  11
  14
  17
  20
  24
  29
  33
  38
  44
  49
  55
  62
  69
  76
  84
  92
  101
  110
  120
  131
  142
  154
  167
Issuance/(repayment) of debt, $m
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Issuance/(repurchase) of shares, $m
  9
  7
  5
  2
  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 from financing (excl. dividends), $m  
  13
  12
  10
  7
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  6
  7
  7
  7
  8
  11
  14
  17
  21
  24
  28
  32
  37
  42
  48
  53
  60
  66
  73
  81
  89
  97
  106
  116
  126
  136
  148
  160
  173
  186
Retained Cash Flow (-), $m
  -9
  -7
  -5
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Prev. year cash balance distribution, $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 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
  -3
  0
  2
  5
  6
  9
  12
  15
  18
  22
  25
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84
  92
  101
  110
  120
  130
  142
  153
  166
  179
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  -3
  0
  2
  4
  4
  5
  6
  7
  8
  8
  8
  8
  8
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  89.6
  82.6
  78.4
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8
  76.8

Lincoln Educational Services Corporation is a provider of post-secondary education. The Company operates in two segments: Transportation and Skilled Trades, and Transitional. The Transportation and Skilled Trades segment offers academic programs in the disciplines of transportation and skilled trades (automotive, diesel, heating, ventilation and air conditioning (HVAC), welding and manufacturing). The Transitional segment includes operations that are being phased out and consists of its campus that is being taught out. It offers programs in automotive technology, skilled trades, which include HVAC, welding and computerized numerical control and electronic systems technology; healthcare services, which include nursing, dental assistant and pharmacy technician; hospitality services, which include culinary, therapeutic massage, cosmetology and aesthetics, and business and information technology, which includes information technology and criminal justice programs.

FINANCIAL RATIOS  of  Lincoln Educational Services Corporation (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 -13.2
Price to Free Cash Flow -7.9
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 $263 million for the last fiscal year's total revenue generated by Lincoln Educational Services Corporation. The default revenue input number comes from 0001 income statement of Lincoln Educational Services Corporation. 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 4% 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 6.6%, whose default value for LINC is calculated based on our internal credit rating of Lincoln Educational Services Corporation, 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 Corporation.
    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 51%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $136 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 5.4% for Lincoln Educational Services Corporation.

Corporate tax rate of 27% is the nominal tax rate for Lincoln Educational Services Corporation. 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 22.2%.

Life of production assets of 7.8 years is the average useful life of capital assets used in Lincoln Educational Services Corporation 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 -10.2%. 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 - $39.866 million for Lincoln Educational Services Corporation - 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 24.643 million for Lincoln Educational Services Corporation 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 Corporation at the current share price and the inputted number of shares is $0.1 billion.

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