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STOCK WATCH / Robert Hanley

National Education's a 'Buy'; but When?

March 15, 1987|ROBERT HANLEY

Wall Street analysts generally agree that National Education Corp. is a very attractive issue for investors who want to get in on the growing vocational-training business.

But they don't all see eye-to-eye when it comes to deciding the right time to buy into the Irvine-based company.

For instance, in a newly released research report, analyst Ward P. Lindenmayer of San Francisco-based Sutro & Co. says National Education is long on potential, but buyers should wait for a little price weakness before investing.

Lindenmayer, who recently began following National Education, said that during upcoming years, the company should easily match the 20% earnings gain it posted for 1986.

As recently reported, National Education had net earnings of $14.98 million--$1 per share--for 1986, compared to 85 cents a share, or $12.5 million, during 1985. Revenues for the year increased 35% to $247 million from $183 million.

Acquisition Growth

Much of National Education's financial growth in 1986 was the result of its acquisition early in the year of six training schools from Virginia-based Coastal Business Colleges and of two training units from Gulf & Western Industries.

Better-than-expected enrollments at National Education's chain of vocational schools also contributed to the strong 1986 results, says Lindenmayer, who projects another good year during 1987.

Based on his estimate that National Education's earnings will increase to $1.25 a share this year, Lindenmayer says the company's stock should be selling for $26 to $28 a share, "making the shares attractive for purchase on a pullback" to $22 or $23 a share.

Because National Education now is selling slightly above his target price, Lindenmayer advises that investors wait. "We would, however, be eager buyers on any meaningful price weakness," he said in his report.

But that could be a problem, suggests analyst William Kurtz of H.G. Wellington & Co., a New York investment house.

National Education, which closed Friday at $24.25 a share on the New York Stock Exchange, has been a hot performer over the past few months. The stock currently is just a fraction of a point off its 12-month high of $24.875 a share--and a long way from its one-year low of $15.25.

"The question is whether or not you think a correction is coming," said Kurtz, who currently is recommending the stock to his clients. "We're giving it a positive recommendation and we're recommending purchase now. We're going ahead with this one."

Based on the $1.25 a share most Wall Street analysts are estimating that National Education will earn in 1987, the company's stock is selling at 19 times earnings, which is "not expensive compared with its growth rate," Kurtz said.

National Education officials could not be reached Friday, but in a recent interview with The Times, Jack Polley, a company vice president, said he was "not uncomfortable" with predictions that the company will earn $1.25 a share in 1987.

Although analysts say National Education is a good investment over the long haul, people who buy into the stock should remember that the issue sometimes can take them on a roller-coaster ride.

Report Spurred Selling

For instance on Oct. 15 the company said that third-quarter net earnings would be almost unchanged when compared with the $4.2 million it reported a year earlier. Following the announcement, investors dumped 823,000 shares, driving National Education down $1 to a closing price of $15.75 a share.

But what the investors failed to notice was that the year-earlier earnings had been bolstered by a $480,000 extraordinary gain. On an operating basis, National Education's net earnings were actually up about 10% from the year earlier.

"It's a volatile stock," said Dennis S. Rosenberg, an analyst with New York-based Oppenheimer & Co. "The stock has always moved up and down in spikes."

Despite the volatility, Rosenberg continues to recommend the stock to his firm's clients.

Although the downside is what he calls "market risk," meaning that the stock will probably track the market as a whole in a correction, Rosenberg says National Education's strong growth means it could sell in the low 30s this year.

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