On Aug 25, 2014, we issued an updated research report on Universal Technical Institute, Inc. (UTI).
On Aug 5, this leading provider of post-secondary education reported third-quarter fiscal 2014 adjusted earnings of 1 cent per share, in line with the Zacks Consensus Estimate and the year-ago figure. Higher operating margins and lower expenses were offset by softer revenues. Earnings per share were better than the company’s expectation of posting breakeven results in the quarter.
Net revenue of $91.3 million rose 0.4% as an increase in tuition rate and industry training revenue offset enrollment shortfall. However, revenues slightly lagged the Zacks Consensus Estimate of $92 million by 0.8%.
Operating margin rose 70 basis points to 1.2% during the quarter driven by solid cost control and increased tuition per student.
Universal Technical has doubled its registration fee, which improved its revenue per student in the quarter and also the quality of student application. In addition, the company is increasing the number of scholarships and making marketing investments in order to improve student starts. However, revenues are still being eroded by declining enrollments levels, a trend which the company expects to continue in the upcoming quarters.
Management expects starts to decline in mid-single digits in the fourth quarter of fiscal 2014 compared to the year-ago level due to difficult economic and regulatory concerns. However, the company expects operating income in the fourth quarter to improve year over year.
We are encouraged by Universal Technical’s strategies to drive enrollment levels. However, we are yet to see any significant improvement in student starts and enrollment trends.
Universal Technical carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks in the education sector include Capella Education Co. (CPLA), GP Strategies Corp. (GPX) and Grand Canyon Education, Inc. (LOPE), all holding a Zacks Rank #2 (Buy).
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