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Universal Technical Stays Neutral

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On Dec 26, we reiterated our Neutral recommendation on Universal Technical Institute, Inc. (UTI - Free Report) . The company’s fourth-quarter fiscal 2013 earnings and revenues missed the Zacks Consensus Estimate and the year-ago levels. However, total student starts in the quarter exceeded the company’s guidance.

Why the Reiteration?

A leading provider of post-secondary education in the United States, Universal Technical reported fourth quarter 2013 results on Dec 3, 2013.

Universal Technical’s fourth-quarter fiscal 2013 earnings and revenues lagged the Zacks Consensus Estimate by 30% and 1.2%, respectively. Earnings declined 36.4% year over year due to a 5.4% decline in revenues and weak margins. The weakness in revenue is due to a 6.4% decline in total enrollments.

However, new enrollment increased 9.5% in the fourth quarter, which lies at the higher end of management’s guidance of a mid- to high-single digit increase. The increase in new enrollment was driven by better quality of student enquiries in the fourth quarter of 2013 and an additional business day in the quarter. It was also driven by recovery in the automobile industry.

The recovery of the automobile industry increased the need for trained technicians. The employment rates are improving and so are wages.

The company is striving to improve total student enrollment by increasing the number of scholarships and making small increases in tuition fee.

However, the company reduced its enrollment starts guidance for the first quarter of 2014, as there is one less business day in the quarter. The company expects new enrollment to decline in the first quarter of 2014, compared to prior expectations of flat results, which concerns us.

Other Stocks to Consider

Universal Technical holds a Zacks Rank #3 (Hold). Better-ranked stocks in the education sector include ITT Educational Services Inc. , New Oriental Education & Technology Group Inc. (EDU - Free Report) and Xueda Education Group . While ITT Educational Services carries a Zacks Rank #1 (Strong Buy), New Oriental Education & Technology Group and Xueda Education Group hold a Zacks Rank #2 (Buy).

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