Legacy Education Inc. (LGCY) stock intrinsic value fair value estimate & owner earnings analysis

Legacy Education runs four for-profit career schools in California that train nurses and allied-health workers: High Desert Medical College (Lancaster, Bakersfield and Temecula; founded in 2002, with 1,956 students at June 30, 2025), Central Coast College (Salinas), Integrity College of Health (Pasadena) and Contra Costa Medical Career College (Antioch), bought on December 18, 2024 for about $7.5 million. Programs include vocational nursing, an associate degree in nursing, ultrasound, MRI and cardiac sonography, pharmacy technician, and medical and dental assisting. A large share of tuition is paid with federal Title IV student aid (72% to 88% of revenue at the three older schools in fiscal 2022-2024), so the business depends on staying eligible for that money. Revenue grew from $35.5 million in fiscal 2023 (June year-end) to $46.0 million in 2024 and $64.2 million in 2025, which the company attributes to more students and higher prices on some programs. The company has reported fiscal 2026 revenue of $80.1 million. We had not yet reviewed the audited 2026 statements, so we relied on the filed nine-month results: revenue of $60.0 million against $46.2 million a year earlier, and third-quarter growth of 15% in a quarter when Contra Costa was owned in both years. Owner earnings are the cash profit after the spending needed to keep the schools running and after the cost of stock-based pay, ignoring timing swings in working capital. They were $2.6 million in 2023, $3.9 million in 2024 and $7.4 million in 2025 ($0.27, $0.40 and $0.58 per diluted share). Three judgement calls matter. First, many students pay part of their tuition in installments, so the company carries large receivables, about $21 million at March 31, 2026, or roughly 27% of a year's revenue, and it books a charge for students expected not to pay. We treat that bad-debt charge as a real cost rather than a non-cash item to add back. Second, the company earned $1.15 million of interest on its cash in 2025. We removed that from business earnings because we count the cash itself separately. Third, we count equipment bought with loans or finance leases as capital spending. We measure the business from the Contra Costa acquisition onward. Our starting level is about $7.2 million a year of business cash flow, or $0.51 per current diluted share. That is the midpoint of fiscal 2025 ($6.7 million) and our estimate for fiscal 2026 (about $7.7 million, built from the filed nine-month results and the company's reported full-year net income). Growth costs money here: each extra dollar of revenue ties up roughly 27 cents in receivables, and we charge that in every case. Base case: business cash flow rises 6% in the first year to about $7.6 million. That is supported by the company's reported student body of 3,377 at June 30, 2026, up 8.9% on a year earlier, with many of those students enrolled in nursing and imaging programs that last a year or more. The 6% is below the roughly 15% growth we estimate for fiscal 2026 because the new federal loan limits apply to new students. Cash flow then grows 3% a year for four years to about $8.6 million, from price increases the company has already made and from filling space already added at the Temecula and Lancaster campuses, and then holds flat. We keep it flat for twenty more years, since High Desert has taught students since 2003 and its accreditation runs through April 2029. After that we fade it to zero over another ten years, because a school that depends on federal aid rules cannot be assumed to last forever. We give no credit for the planned Houston, Texas campus (the company has signed a lease), for Contra Costa's newly approved programs that have not yet launched, or for any rise in margins. On this basis the business is worth about $118 million. The company owes about $0.8 million (small promissory notes, an equipment loan and finance leases) and held $21.7 million of cash at March 31, 2026. We treat $5 million of that cash, a little under a month of operating costs, as needed to run the schools. That leaves about $134 million for shareholders, or $9.52 per share. Bear case: three named risks arrive together. The One Big Beautiful Bill Act, signed July 4, 2025 with a general effective date of July 1, 2026, caps federal loans (parent PLUS loans at $20,000 a year and $65,000 in total). It also adds an earnings test that can remove federal loan eligibility from associate degree programs. High Desert, the largest school, took 87.55% of its revenue from federal aid in fiscal 2024, up from 82.17% in 2022. The legal ceiling is 90%, and the American Rescue Plan Act now counts GI Bill and military tuition assistance toward it, so staying under the limit may mean cutting prices or enrolling fewer aid-dependent students. Meanwhile the reserve for unpaid tuition has climbed from $0.34 million in June 2023 to $2.65 million in March 2026. In this case business cash flow falls from $7.2 million to about $5.3 million within three years, holds there to year ten and then fades to zero over the following ten. The business is worth about $52 million. With the same $0.8 million of debt and $16.7 million of surplus cash, shareholders are left with about $68 million, or $4.82 per share. Bull case: the enrollment gains carry through, Contra Costa's two newly approved degree programs and one new certificate program fill, and the expanded campuses reach capacity. Business cash flow grows 10% in the first year, 6% a year for four years and 3% a year for five, reaching about $11.5 million by year ten, then follows the same long plateau and fade as the base case. The business is worth about $144 million, and adding net cash gives about $160 million, or $11.37 per share. Regulatory items to watch: High Desert's and Central Coast's federal program participation agreements carry an expiration date of September 30, 2026. Integrity and Contra Costa operate under month-to-month provisional agreements while the Department of Education reviews their changes of ownership, and Integrity's has run month to month since its November 2020 expiry. Losing federal aid at High Desert would break every case. The upside would prove us wrong if enrollment keeps growing without acquisitions and collections hold steady. The downside would prove us wrong through the 90% limit or the new earnings test. The margin-of-safety price of $5.10 is about 46% below the base case and close to the bear case. That discount reflects a small company that relies heavily on federal student aid and faces rule changes whose effect cannot yet be measured.