Universal Technical Institute Is Well Positioned & Patience Is Required: Analyst

  • Rosenblatt analyst Steve Frankel reiterated a Buy rating on the shares of Universal Technical Institute Inc UTI and lowered the price target from $10 to $9.
  • The analyst said the company reported solid Q4 results consistent with its positive pre-announcement.
  • However, the analyst added that slower starts among the adult population continue to create headwinds, leading to some margin pressure over the next couple of quarters.
  • The fiscal year will tilt significantly toward Q4, which could account for roughly half of the year's Adj. EBITDA.
  • Given the double-digit decline in the share price, the analyst believes the bad news is fully priced in and continue to believe UTI is well positioned, with a growing portfolio of corporate partners, strong student outcomes and diversification into healthcare via the Concord acquisition.
  • While patience is required, the analyst remains a buyer of UTI.
  • Frankel added despite near-term headwinds, the company continues to deliver a high ROI educational experience, with a 60% graduation rate and with 82% of graduates employed in their chosen field of study, up 200 basis points year-over-year.
  • The analyst said the pipeline of prospect adult learners is improving but still below pre-COVID levels.
  • As a result, the analyst expects UTI on a standalone basis to face tough comparable sales in the first half of 2023, with results improving as high school grads enter in the back half of the year.
  • While UTI continues to execute strategically, the slower than expected growth of the adult learner population creates material near-term headwinds and the hoped for accretion from the Concord acquisition will take a couple of quarters to be realized, the analyst noted.
  • Still, the analyst sees the company well positioned for any economic downturn with a solid balance sheet and a growing portfolio of course offerings.
  • Price Action: UTI shares are trading lower by 2.20% at $5.77 on the last check Tuesday.
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