On May 23, 2014, we issued an updated research report on Universal Technical Institute, Inc. (UTI).
On Apr 29, this leading provider of post-secondary education reported a wider-than-expected adjusted loss in the second quarter of fiscal 2014. Adjusted loss of 6 cents per share was wider than the Zacks Consensus Estimate of a loss of 1 cent as well as the year-ago loss of 4 cents. Higher interest expenses and lower income tax benefits than last year offset relatively better starts (new student enrollments) and narrower operating loss this quarter.
Net revenue of $94.7 million declined 0.4% from the prior-year quarter due to a decline in enrollments. However, revenues beat the Zacks Consensus Estimate by 1.8%, which we believe was due to meaningful growth in starts during the quarter. The declining enrollments in the quarter was a result of macroeconomic headwinds; sluggish demand due to reluctance in taking loans and continued challenges in obtaining student financing; changing regulatory requirements; increased price sensitivity and affordability concerns and increased competition.
In order to improve student starts, the company is increasing the number of scholarships and making marketing investments. However, the company curtailed its expectation of student starts for the remaining of fiscal 2014. Management expects new enrollments to decline slightly year over year in the second half of 2014 due to difficult economic conditions and affordability concerns. Estimates for 2014 and 2015 were largely revised downwards in response to the soft second-quarter results.
Universal Technical carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks in the education sector include Lincoln Educational Services Corporation (LINC), Strayer Education Inc. (STRA) and DeVry Education Group Inc. (DV). While Lincoln Educational Services sports a Zacks Rank #1, Strayer Education and DeVry Education carry a Zacks Rank #2 (Buy).