Earnings Scorecard: Universal Technical Institute

Aug. 2.11 | About: Universal Technical (UTI)

Universal Technical Institute Inc. (NYSE:UTI) recently posted better-than-expected third-quarter 2011 results. Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

On July 27, 2011, Universal Technical Institute delivered quarterly earnings of 27 cents a share that topped the Zacks Consensus Estimate of 21 cents, and climbed 8% from 25 cents earned in the prior-year quarter.

Net revenue for the quarter inched up 1.3% to $108.9 million from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $105 million. The increase in revenues reflects a rise in tuition fees, partially offset by a fall in average undergraduate full-time student enrollment.

Management's Guidance

Universal Technical cautioned that enrollment of new students for the fourth quarter and fiscal 2011 will be below the prior periods, and consequently result in a low single-digit revenue growth.

Agreement of Analysts

Estimate revision trends for the upcoming fourth quarter of 2011 portrayed mixed sentiments among the analysts. Over the last seven days, three out of nine analysts covering the stock upgraded their estimates, while one analyst downgraded the estimate. However, the first quarter of fiscal 2012 portrayed negative sentiments among the analysts. Over the last seven days, four out of nine analysts downgraded their estimates for first-quarter 2012.

For fiscals 2011, seven out of nine analysts revisited their estimates, of which five analysts upgraded their estimates, while two analysts lowered their estimates over the last seven days. On the contrary, for fiscal 2012, five analysts adjusted their estimates in the downward direction, while two analysts upgraded their estimates.

Magnitude of Estimate Revisions

In the last seven days, the Zacks Consensus Estimate for fiscal 2011 inched up 4 cents to $1.21, and for fiscal 2012, it went down 8 cents to $1.05 per share.

For the fourth quarter of 2011, the Zacks Consensus Estimate inched up by a penny to 29 cents, while it came down by 2 cents to 34 cents for the first quarter of 2012, in the last 7 days.

The current Zacks Consensus for fourth-quarter 2011 is pegged from a low of 25 cents to a high of 36 cents. For fiscal 2011, the estimates range from 95 cents to $1.29.

Our Recommendation

Universal Technical Institute Inc. is a leading provider of post-secondary technical education in the United States, offering undergraduate degree, diploma, and certificate programs at 11 campuses throughout the country for students seeking careers as professional automotive, diesel, collision repair, motorcycle, and marine technicians. The company works closely with leading original equipment manufacturers (OEMs) in the automotive, diesel, motorcycle and marine industries to continuously refine as well as expand its programs and curricula.

The company derives a major portion of its revenue from federal student financial aid programs, the Title IV programs, administered by the U.S. Department of Education. The Department of Education could limit, suspend or terminate Universal Technical's participation in Title IV programs for violation of the Higher Education Act or Title IV regulations, which may impact its revenue growth potential.

Moreover, the Department of Education proposed that an educational program could only qualify for Title IV funds, if it helps in achieving profitable employment, which includes the criteria of loan repayment rate and debt-to-income ratios. The institutions are under scanner due to the rise in the default rate of student loans, and are at present being asked to submit information relating to recruitment procedures and the use of student’s grant.

Currently, we have a long-term 'Underperform' rating on the stock. Universal Technical, which competes with Corinthian Colleges Inc. (NASDAQ:COCO), holds a Zacks #3 Rank, which translates into a short-term 'Hold' recommendation.