On Jul 5, Zacks Investment Research downgraded Universal Technical Institute, Inc. (UTI) to a Zacks Rank #5 (Strong Sell) as the company expects starts to continue to decline in its soon to-be-reported third quarter results and in fiscal 2014.
Why the Downgrade?
At the second quarter fiscal 2014 conference call, Universal Technical offered a rather disappointing outlook for 2014. Despite reporting new student enrollment growth in the second quarter of fiscal 2014, the company expects starts to decline slightly year over year in the second half due to difficult economic conditions and affordability concerns.
Management expects the fourth quarter to be stronger than the third. In the third quarter, the bottom line is expected to be close to breakeven.
Enrollments at this leading provider of post-secondary education have been weak since the past few quarters due to macroeconomic headwinds; sluggish demand due to reluctance in taking loans, continued challenges in obtaining student financing; changing regulatory requirements; increased price sensitivity, affordability concerns and increased competition.
In fact, the company reported wider-than-expected adjusted loss in second quarter fiscal 2014. Higher interest expenses and lower income tax benefits than last year offset relatively better starts and narrower operating loss in the quarter. The company’s top line was also weak owing to declining enrollments.
The Zacks Consensus Estimate for fiscal 2014 declined 20.0% over the last 90 days. The Zacks Consensus Estimate for fiscal 2015 declined 21.2% over the last 90 days.
Better-ranked stocks in the education sector include DeVry Education Group Inc. (DV), Lincoln Educational Services Corporation (LINC) and TAL Education Group (XRS). All three companies carry a Zacks Rank #1 (Strong Buy).