Universal Technical Institute Inc. (UTI), which provides professional automotive, diesel, collision repair, motorcycle and marine programs recently, posted second-quarter 2011 results.
Street analysts had over a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
Universal Technical’s quarterly earnings of 28 cents a share outdid the Zacks Consensus Estimate of 26 cents, and climbed 12% from 25 cents earned in the prior-year quarter.
Net revenue for the quarter climbed 8.1% to $114.2 million from the prior-year quarter, and remained at par with the Zacks Consensus Estimate. The increase in revenue reflects higher average undergraduate full-time student enrollment and 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 rose 3.3% to 18,800 students. However, student starts for the quarter fell 12.2% to 3,600.
(Read our full coverage on this earnings report: Universal Tech Tops EPS Ests)
Agreement of Estimate Revisions
Clearly, a negative sentiment is palpable among analysts, who remain skeptical about Universal Technical’s performance. Following the earnings release, the Zacks Consensus Estimates have been falling with analysts remaining bearish on the stock on account of falling enrollments.
In the last 30 days, 4 out of 9 analysts covering the stock lowered their estimates with 1 analyst increasing the projection for third-quarter 2011. For fourth-quarter 2011, 3 analysts revised their estimates downward, but none raised the same.
For both fiscal 2011 and 2012, 7 analysts have lowered their estimates in the last 30 days, and none revised the estimate in the upward direction.
Magnitude of Estimate Revisions
For third-quarter 2011, the Zacks Consensus Estimate slipped by 4 cents to 22 cents and for fourth-quarter 2011 it fell by 2 cents to 29 cents a share in the last 30 days.
In the last 30 days, the Zacks Consensus Estimate for fiscal 2011 dropped by 8 cents to $1.19, and for fiscal 2012 the Estimate plunged by 19 cents to $1.18 per share.
The estimates in the current Zacks Consensus for third-quarter 2011 range from a low of 17 cents to a high of 28 cents a share. For fiscal 2011, the estimates range from $1.00 to $1.34.
Universal Technical to Underperform
The regulation proposed by the Department of Education is weighing upon student enrollments. We observe that the rate of growth of average undergraduate full-time student enrollment decelerated to 3.3% during second-quarter 2011 from 8.5% in the previous quarter.
Moreover, total student starts for the quarter dropped 12.2%. The company warned that enrollment of new students for fiscal 2011 will be below the prior-year, and consequently will result in a low single-digit revenue growth.
Currently, we have a long-term ‘Underperform’ rating on the stock. Universal Technical, which competes with Corinthian Colleges Inc. (COCO), holds a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ recommendation, and correlates with our long-term view.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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