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Lincoln Educational Services Corporation (LINC - Snapshot Report) shares declined a massive 35% since the release of its second-quarter 2014 earnings results on Aug 6. The decline was primarily due to the cut in guidance for full year 2014. In addition, board of directors of the company reduced its quarterly dividend to 2 cents per share from 7 cents.

 

Second Quarter 2014 Results

Lincoln Educational’s second-quarter 2014 adjusted loss (including the impact of valuation allowance) of 30 cents per share was narrower than the Zacks Consensus Estimate of a loss of 57 cents and the prior-year quarter loss of 37 cents per share due to a decline in expenses. The reported loss was also narrower than the company’s expected loss of 57 cents to 60 cents per share.

Revenues of $77.2 million lagged the Zacks Consensus Estimate of $78 million by 1% in second-quarter 2014. Revenues were down 5.6% year over year and stayed close to the lower end of the company’s expected range of $77.0 million to $79.0 million.

The decline in revenues was due to lower-than-expected student starts, a decline of 4.8% in student enrollment and 0.9% in revenue per student.

Student starts increased 0.6% year over year, much lower than the company’s expected range of 2% to 4% increase. The decline in new enrollment and total enrollment levels was due to student uncertainty over debt. Revenue per student declined in the quarter due to increased institutional scholarships.

Lincoln Educational has been reporting negative enrollment trends for the past few quarters. In fact, the company expects student starts to decline in the remaining quarters of 2014. The company is extremely skeptic about lending constraints that the education industry faces with increasing reluctance of banks to offer loans. As such, the company will monetize $50 million of real estate.

Cuts 2014 Revenue Guidance

Revenue for 2014 is expected to range between $330.0 million and $340.0 million, down from the prior expectation of $340.0 million to $350.0 million.  Revenue is expected to decline from $345 million reported in the prior year. The company expects net loss per share of 62 cents to 74 cents in fiscal 2014 compared with loss of $1.50 in 2013. The company expects student starts to be down 1% to 3% for the year compared to the prior expectation of mid to high single digits increase.

Third Quarter 2014 Outlook

In the third quarter of 2014, Lincoln Educational expects revenues to range between $83.0 million to $85.0 million, representing a decline of around 5% from last year’s quarter.  Net loss per share is expected to range between 14 cents and 20 cents as compared to break-even results in the prior year quarter. Student starts are expected to decline between 8% and 10% from the prior year quarter.

Lincoln Educational carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked education companies include Capella Education Co. (CPLA - Analyst Report) Grand Canyon Education, Inc. (LOPE - Snapshot Report) and Strayer Education Inc. (STRA - Analyst Report). All the three companies carry a Zacks Rank #2 (Buy).

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