Shares of Universal Technical Institute, Inc. UTI plunged a significant 30% on Dec 2 following weak earnings results announced a day before. Moreover, the U.S. Attorney’s Office for the Western District of North Carolina and several law firms are investigating if the company has violated federal securities laws. These investigations may potentially result in lawsuits down the road.
We would like to remind investors that the shares tanked 22% in July after the company received a subpoena from the U.S. Attorney’s Office for the Western District of North Carolina. Law firms, such as, Khang & Khang LLP, Levi & Korsinsky, Bragar Eagel & Squire, P.C., Goldberg Law PC, and Law Offices of Howard G. Smith, are now investigating on behalf of the investors the loss that they may have incurred. They intend to investigate whether the education company had indeed provided wrong information to its stockholders.
On Jul 24, 2015, Universal Technical announced that it has received a subpoena from the U.S. Attorney’s Office for the Western District of North Carolina. Filed under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the subpoena demanded information regarding operations of the company’s Mooresville, NC campus over the past several years. The court has also asked the company to provide documents related to its compliance with the ““90/10 rule,” as well as those related to its other programs and practices.
The 90/10 rule under the Higher Education Act prohibits any proprietary institution from deriving more than 90% of its revenues from Title IV funds, on a cash accounting basis, for any two consecutive fiscal years. While the company has agreed to cooperate with the U.S. Attorney’s Office, it has refused to predict any possible outcome.
Universal Technical Institute seems to be going through a rough patch at the moment. The company ended fiscal 2015 on a disappointing note – missing earnings estimates and reporting a wider-than-expected decline in revenues in the fourth quarter.
The company's fiscal fourth-quarter 2015 earnings results were released earlier on Dec 1. The company lagged its target of recording student start growth in the quarter as starts declined year over year.
Total enrollment during the fiscal fourth quarter was weak due to a lower student population at the beginning of the quarter and poor student starts. The company reported an operating loss on lower revenues and higher advertising expenses. In fact, the company expects this weakness to continue into fiscal 2016. Nonetheless, the company expects fiscal 2016 student starts to increase in low single digits, as it increases investment to support student start growth.
Universal Technical carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the education industry include Lincoln Educational Services Corporation LINC, New Oriental Education & Technology Group Inc. EDU and TAL Education Group XRS, each sporting a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued on Dec 3, 2015, should no longer be relied upon.)
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