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Here's Why You Should Buy Universal Technical Stock Now

Zacks Equity Research

Universal Technical Institute, Inc.’s UTI focus on smaller campuses, cost-saving initiatives and original equipment manufacturers or OEM relationships bodes well for its profitability. Also, the company’s aggressive marketing efforts and initiatives to drive student starts are gaining traction.

Universal Technical recently reported fiscal second-quarter 2019 results, wherein loss of 27 cents per share narrowed from the year-ago loss of 40 cents. Revenues increased 1.3% from the prior-year period, backed by higher average full-time enrollment. Notably, its total starts improved 11.2% year over year.

Coming to price performance, Universal Technical’s shares have gained 15.9% against its industry’s fall of 15.5% over the past year.

Let’s delve deeper into the factors that substantiate its Zacks Rank #2 (Buy).

Transformation Initiatives: Universal Technical’s transformation plan bode well for bottom-line performance. The company has been undertaking several initiatives that is intended to drive new student starts and completions and to enhance student success.

Notably, in fiscal fourth-quarter 2018, the company recorded increased new student starts for the first time in eight years. Moreover, in fiscal first-quarter 2019, the metric grew 14.8% year over year. This was followed by 11.2% growth in the fiscal second quarter.

It is also working closely with more than 30 leading OEMs to gain a competitive advantage. Universal Technical is a primary provider of manufacturer specific advanced training (“MSAT”) programs that offer a cost-effective alternative for sourcing, and developing technicians for both OEMs and their dealers.

Also, it focuses on optimization of its media mix, launch of a website to enhance users' experience with relevant and targeted content, conduct career workshops and work with industry partners, regulators and policymakers to improve access to high schools.

Smaller Campus to Drive Growth: Universal Technical has undertaken several initiatives to drive enrollments and return to profitability. Its keen focus on opening smaller commuter-friendly campuses in high-demand locations is one of those initiatives. These smaller campuses are roughly one-third of older campuses, and aim to benefit student population that lives and works in close proximity to the campus. It already has two such campuses in Dallas and Long Beach. The company has plans to introduce more of such campuses in the near term.

In first-quarter fiscal 2019, the company consolidated the Houston campus in order to reduce the size of the same.

Marketing Efforts & Efficiencies Bode Well: The company has been refining its marketing efficiency by creating higher-quality inquiries using a new media-mix model. The company has shifted traditional advertising channels to digital and local channels that focus on potential students and their families.

To this end, in fourth-quarter fiscal 2018, the company launched its website and shifted its media mix to obtain steady year-over-year improvement in inquiry. Notably, 50% of its media inquiries were created from the highest-converting brand sources, converting enrollment at four times the rate of other media sources.

Solid Growth Prospects: Universal Technical has solid growth prospects, as is evident from the Zacks Consensus Estimate for fiscal 2019. Loss estimates of 78 cents per share are 48.3% narrower than the year-ago period. It is anticipated to generate earnings of 28 cents in fiscal 2020, up 135.9% year over year.

Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.

Other Stocks to Consider

Other top-ranked stocks from the same space include Strategic Education, Inc. STRA, Bright Horizons Family Solutions Inc. BFAM and Career Education Corporation CECO. While Strategic Education sports a Zacks #1 Rank (Strong Buy), Bright Horizons and Career Education carry a Zacks Rank #2 (Buy). You can the complete list of today’s Zacks #1 Rank stocks here.

Strategic Education has an expected earnings growth rate of 36.2% for 2019.

Bright Horizons’ earnings per share are expected to increase 12.8% in 2019.

Career Education is expected to record an EPS growth rate of 11.4% in 2019.

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