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Bear of the Day: Universal Technical Institute (UTI)

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Employers have been slowly adding jobs to the American economy.  But unlike past growth cycles, the most recent expansion looks more like a cake with too little yeast than a balloon inflated under high pressure.

The past year has also been littered with layoffs from companies of all sizes. Many of the jobs added and current jobs available have either been at the low end of the scale or at the upper end, as corporations trim the fat in the middle, automate and economize their businesses to improve margins.

One of the areas worst hit has been career training companies like Universal Technical Institute (UTI - Free Report) .  UTI provides training for automotive, marine, motorcycle and collision repair and their last year has been extremely tough.

Earnings Drop
So tough in fact that UTI missed earnings expectations 4 of the last 5 reports and has seen their earnings metrics drop year over year.

Just last week, UTI reported Q1-2013 revenues of $98.4 million, a 7.5% decrease from $106.4 million in Q1-2012. Net income for the first quarter ended Dec. 31, 2012 was $3.6 million, or 14 cents per diluted share, compared to $4.5 million, or 18 cents per diluted share in the same period last year.

Return on equity for the trailing four quarters ended Dec. 31, 2012 was 5.5% compared to 6.2 % for the trailing four quarters ended Sept. 30, 2012.

CEO Kim Mcwaters did not sound upbeat about the results or about the future: "For the past several quarters, we, like the rest of the industry, have faced real challenges in attracting new students, and in having them start school. While we expect those trends to continue through much of 2013, our fundamental business is strong,"

"We have a plan in place to better reach our students in a confusing and competitive marketplace, to strengthen key processes, and to continue to make investments to generate profitable growth. As this plan takes hold, we hope to see improved student starts in the fourth quarter of this year."

Margins, income, cash and EBITA were all lower compared to last year. 

Short Candidate?
Even with the poor results, the stock recently rallied because the EPS came in higher than expectations and because the market has been extremely bullish.

But when you look at the stock in its current over-bought condition and couple that with the fact that their earning trajectory is negative, their P/E ratio is above 50, they are a Zacks Rank #4 and their outlook is dismal; I find little reason why anyone would want to be long.

The recent rally looks like a classic short squeeze and market sympathetic move in a stock that is trading at 400% of the S&P 500’s multiple with no reason to be.  It might be a stock to consider to the short side.

*disclosure; we are currently positioned short in this name in my TAZR service and will be looking to cover those shares on the next move lower

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