Universal Technical Hits 52-Week Low, Starts Outlook Bleak

On Sep 12, 2014, shares of Universal Technical Institute, Inc. UTI touched a 52-week low of $10.48. Universal Technical's share price has been declining ever since it reported soft third quarter 2014 earnings results on Aug 5. Shares of Universal Technical eventually closed at $10.71 on Sep 12, with a negative year-to-date return of 22.2%.

What Led to the Drop?

Since the release of soft numbers for the third quarter of 2014 and a weak outlook for new enrollment for the upcoming quarter, shares of Universal Technical have dipped 12.5%.

Universal Technical's third-quarter fiscal 2014 adjusted earnings of 1 cent per share matched the Zacks Consensus Estimate as well as the year-ago figure. Despite a marginal year-over-year increase, net revenue of $91.3 million was eroded by a decline in enrollments.

Universal Technical's enrollments have been trending down consistently over the past few quarters as a result of macroeconomic headwinds; sluggish demand due to reluctance in taking loans and continued challenges in obtaining student financing; changing regulatory requirements; increased price sensitivity and affordability concerns and increased competition.

In order to improve the quality of student applications, the education company doubled the registration fee in the third quarter of 2014, which resulted in a 27% decline in new student applications. Though this resulted in higher revenue per student, the company expects applications to decline in the upcoming two quarters as well. In addition, 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.

Most of the estimates for this Zacks Rank #3 (Hold) company moved downward in the past 60 days, following the weak guidance. The Zacks Consensus Estimate for fiscal 2015 declined 19.2% to 21 cents per share over the same time frame.  

Other Stocks to Consider

Stocks in the education industry that are currently performing well include GP Strategies Corp. GPX, Grand Canyon Education, Inc. LOPE and Apollo Education Group, Inc. APOL. GP Strategies sports a Zacks Rank #1 (Strong Buy) while Grand Canyon Education and Apollo Education both carry a Zacks Rank #2 (Buy).