Skip to main content

For-profit education stocks -- throwing Lincoln Educational Services out with the bathwater?

You may be a aware of some of the controversy surrounding for-profit schools like Apollo Group's University of Phoenix. The U.S. Department of Education intends to review financial-aid practices at the school.

Many for-profit education companies face federal scrutiny because almost 90 percent of the companies’ revenues derive from funds from the Title IV federal aid program. Many of these funds are disbursed to the schools as government-guaranteed student loans. Essentially, the schools can't lose if students fail to finish their degree programs or default on the loans. The schools have been accused of marketing too aggressively to sign up students and get their hands on the Federal student loan money with little regard for the students or their potential to actually benefit from the programs being offered. The difficulties many students have in obtaining the jobs the schools led them to expect has also led critics to contend that the for-profit schools are simply in business to obtain Federal loan dollars.

On today's Alert HQ Premium Value and Growth Report, however, there is a for-profit school that may be worth your consideration. Lincoln Educational Services (LINC) recently announced earnings and exceeded expectations. The following chart from Google Finance shows the improvement on both top-line and bottom-line:

 By virtue of being on the Growth and Value Report, the company needed to register year-over-year growth in earnings and revenue as well as sequential quarter-over-quarter growth. Lincoln was able to deliver that kind of performance.

Valuation --

As a result of the sell-off in the whole for-profit education sector, Lincoln's valuation has been driven deeply into value stock territory. At this point, the PE is less than 6, PEG is less than 0.6, Price-to-Sales is merely 0.61 and Enterprise Value/EBITDA is a paltry 2.73. These numbers are characteristic of very deep value.

Not only is the valuation attractive, but other financial measures are notably good. With the combination of Return on Assets over 20% and Return on Equity over 31% management effectiveness appears to be solid. Net Profit Margin of nearly 11% is almost twice that of the sector. Price to Cash Flow is roughly three times better than that of the sector.

Momentum --

In terms of momentum, the stock has appeared on the Alert HQ Trend Leaders list which means that three trending measures are all currently positive. In the following chart, you can see that Wilder's DMI, MACD and Aroon are all bullish:


The outlook --

As alluded to above, enrollment counselors have in some cases been accused of over-promising the benefits of attending these for-profit schools and also of enrolling less than qualified students who have little chance of do well. With the jobs students expect failing to materialize, the student is left owing money on their student loans and facing serious difficulties in making the payments. Ultimately, the taxpayer is left holding the bag if the students default. The schools, however, are left relatively unscathed though a school may lose its eligibility to receive federal financial aid under certain Title IV programs if its Cohort Default Rates (CDRs) exceed specified percentages in the 25% to 30% range.

The question is, should Lincoln Educational Services be considered one of the major offenders in this game of roping in students just to harvest the student loans?

The company says its 2-year CDRs range from 8.69% to 13.42%. Unfortunately, regulations have changed and now 3-year CDRs are being used. The company's CDRs are not so good for this extended evaluation range; however, the company has said that the new regulations will mean that they will stay more involved with the students for a longer time. Lincoln intends to actively work with former students in danger of defaulting during the 3-year measurement period in order to help them manage their outstanding loan commitments and to counsel them on alternatives to meet their financial obligations.

Also, Lincoln is different from University of Phoenix, for example, in that Lincoln tends to focus on training for fairly down-to-earth professions rather than offering degrees like liberal arts or communications. This should tend to make graduates more employable as they enter the job market with more specific skills.

So have investors thrown the baby out with the bathwater? Lincoln Educational Services is clearly cheap at current levels, their earnings and revenues are growing and, after seeing the stock plunge, positive momentum is now building. That momentum suggests that the fear of government scrutiny may be over-done with respect to Lincoln Educational Services. Which all implies this stock is a buy.

Disclosure: no positions

Comments

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …