On Aug 14, Zacks Investment Research downgraded Lincoln Educational Services Corporation (LINC) to a Zacks Rank #5 (Strong Sell), following the announcement of disappointing fiscal second quarter 2013 results and a bleak guidance for the third quarter and full year 2013.
Why the Downgrade?
Lincoln Educational missed the Zacks Consensus Estimate for both revenues and earnings per share in the second quarter of 2013. The company has been witnessing weak enrollment growth for some time. The company also announced its decision to close five of its campuses.
Lincoln Educational’s second quarter 2013 loss of 37 cents was wider than the Zacks Consensus Estimate of a loss of 32 cents and the prior-year quarter loss of 14 cents due to double-digit decline in the top line.
Revenues of $85.2 million lagged the Zacks Consensus Estimate of $88 million by 3.2% in second quarter 2013. Revenues were down 12.2% year over year to $85.2 million. The decline in revenues was due to a 15.4% drop in student enrollment. Enrollments declined due to regulatory changes under the Consolidated Appropriations Act, and management’s decision to stop enrollment of online students and close five campuses in Ohio and Kentucky. The decline in revenues was also due to student uncertainty over debt, which led to a drop in new enrollment and total enrollment.
For 2013, the company lowered its revenue expectation to $355 million compared to the previously provided guidance of $395 to $405 million. The company also altered its expectation to loss per share of $1.00 compared to the prior guidance of loss per share of 5 cents to earnings of 5 cents. The full year loss per share includes the adverse impact of campus closures. New enrollments are expected to be flat year over year.
For the third quarter of 2013, the company expects 15% year-over-year decline in revenues. The company also expects loss per share of 20 cents to 25 cents for the quarter.
Other Stocks to Consider
Other education companies that are performing well are ATA Inc. (ATAI), Grand Canyon Education, Inc. (LOPE) and TAL Education Group (XRS). All the three companies carry a Zacks Rank #2 (Buy).
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