Macro-economic headwinds, regulatory issues and lower students’
enrollment continue to weigh upon Universal Technical
Institute Inc. (UTI) that went on to post
lower-than-expected first-quarter 2012 results.
Street analysts have had time to ponder over the company’s
scores. In the paragraphs that follow, we cover the recent earnings
announcement, subsequent estimate revisions by analysts as well as
the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Universal Technical reported its first quarter financial results
on February 2, 2012. The quarterly earnings of 16 cents a share was
way below the Zacks Consensus Estimate of 27 cents, and dropped
significantly from 42 cents earned in the prior-year quarter.
Net revenue for the quarter declined 9.4% to $106.4 million from
the prior-year quarter, and came marginally ahead of the Zacks
Consensus Estimate of $105 million. The fall in revenue reflects a
decrease in average undergraduate full-time student enrollment,
partially offset by a rise in tuition fees.
The educational institute, which provides professional
automotive, diesel, collision repair, motorcycle and marine
programs, reported that average undergraduate full-time enrollment
dropped 10.7% to 18,300 in the first quarter of 2012, after falling
11.3% in the fourth quarter of 2011.
Student starts for the quarter remained flat at 3,300 compared
with the prior-year quarter, reflecting an improvement over a
decline of 14.5% and 32.5% witnessed in the fourth quarter and the
third quarter of 2011, respectively.
The company reported a 4% year-over-year fall in the number of
student applications received, which however reflected a
significant improvement from a decline of 8% experienced in the
fourth quarter of 2011.
(Read our full coverage on this earnings report: Lower
Enrollment Weighs on UTI)
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that majority of
the analysts were unidirectional following Universal Technical’s
first-quarter 2012 results.
In the last seven days, five out of eight analysts covering the
stock lowered their estimates for the second quarter of 2012. For
the third quarter, four analysts trimmed their estimates.
For fiscal 2012 and 2013, six analysts revised their estimates
downward in the last seven days.
What Drives Estimate Revision
Clearly, a negative sentiment is palpable among analysts, who
remain pessimistic on Universal Technical’s performance. Following
the earnings release, the Zacks Consensus Estimate has been
depicting a downfall with analysts remaining bearish on the
stock.
Analysts were also not impressed with Universal Technical’s
cautious stance about its performance in fiscal 2012. While the
company expects the new student starts to improve in the second
half of the year, the company warned that during the second quarter
it could drop in the high single-digit to low double-digit from the
prior-year period and will also fall sequentially.
Management alarmed that average number of students for fiscal
2012 will drop at a low-teens rate, and will consequently result in
a mid to high single-digit revenue decline.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
Estimates.
The Zacks Consensus Estimates for the second and third quarters
of 2012 moved down by 7 cents to 10 cents and 12 cents,
respectively, in the last 7 days.
For fiscal 2012, the Zacks Consensus Estimates dropped 21 cents
to 67 cents in the last 7 days. For fiscal 2013, the Zacks
Consensus Estimates slid 20 cents to 69 cents.
Closing Comment
Universal Technical’s leading position in providing technical
education to aspiring automotive professionals and its business
model of working closely with leading original equipment
manufacturers provide the company a competitive advantage. However,
the regulation proposed by the Department of Education is weighing
upon student enrollments.
To counter the sluggishness currently witnessed in the student
enrollment, amid the turbulent environment and regulatory pressure,
the company is pushing hard to manage costs effectively, trying
means to improve marketing efficiencies and is focusing on
launching new curriculum. Further, to unlock its brand value, the
company is coming up with a new tag line and will be using UTI
School logo.
Universal Technical further intends to bring its current and
potential students under the spectrum of proprietary loan program
by increasing its accessibility, and enhance the count of
need-based scholarships in fiscal 2012.
Currently, we are maintaining our long-term Neutral rating on
the stock. However, Universal Technical, which competes with
Corinthian Colleges Inc. (COCO) and
Lincoln Educational Services Corporation (LINC),
holds Zacks #4 Rank that translates into a short-term Sell
recommendation, and well define the waning economy, tough
regulatory environment and falling enrollments, which are adversely
impacting the top and bottom-line results.
CORINTHIAN COL (COCO): Free Stock Analysis Report
LINCOLN EDUCATL (LINC): Free Stock Analysis Report
UNIVL TECH INST (UTI): Free Stock Analysis Report
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