Here's Why You Should Stay Away From Universal Technical Now

Universal Technical Institute’s (NYSE:UTI) shares have lost 24.2% in the past one year, faring miserably against the Zacks School Industry’s rally of 42.8%.

Moreover, Universal Technical’s current-quarter loss estimates were stable over the past 60 days. The same for the current year declined 1.3% due to one downward revision versus none in the opposite direction. As a result, the stock carries a Zacks Rank #4 (Sell).

Let’s take a look at the factors that make the stock look unattractive at this point.

Declining Enrollment Trends: Universal Technical’s enrollments have been sluggish for several quarters, thanks to regulatory challenges as well as changes and competition in the higher education industry. Though the employment situation is improving, wages are growing modestly.

In fiscal 2017, lower student population levels and fewer new student starts resulted in a decline of 9.2% in average undergraduate full-time student enrollment. Total starts of 10,600 students represent a fall of 6.2% year over year. The downward trend continued in the first quarter of fiscal 2018 with average student enrollment declining 5.8% and total starts falling 7.1% year over year.

FY18 Guidance Unimpressive: The company expects fiscal 2018 revenues in the range of $310-$320 million, down 4.4-1.3%. Moreover, the average student population is likely to decline mid-single digits. Operating expenses are projected in the range of $340-$345 million, reflecting an increase of $14-$19 million from fiscal 2017. Universal Technical expects to incur operating loss between $20 million and $25 million (more than $1.8 million in fiscal 2017) and negative EBITDA.

Lackluster Bottom Line Performance: The company’s lackluster bottom-line performance in the last quarter disappointed investors. In fiscal 2017 earnings decreased 73.3% year over year.

Moreover, Universal Technical reported a loss of 21 cents in the first quarter of fiscal 2018, which was wider than the Zacks Consensus Estimate of a loss of 9 cents. Moreover, Universal Technical missed estimates in three of the past four quarters with an average miss of 126.6%.

Earnings in fiscal 2018 are expected to decline 54.9% against the industry’s projected growth of 26.9%.

Industry Outlook Negative: The Zacks School Industry ranks among the bottom 31% out of 265 industries. This indicates that companies in this space are likely to get affected due to unfavorable broader factors in the immediate future.

VGM Score: Universal Technical has a VGM Score of D. Our VGM Score identifies stocks that have the most attractive Value, Growth and Momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) make solid investment choices. This is not the case here.

Stocks to Consider

A few better-ranked stocks in the Zacks Consumer Discretionary sector are American Public Education, Inc. (NASDAQ:APEI) , Grand Canyon Education, Inc. (NASDAQ:LOPE) and AMC Networks Inc. (NASDAQ:AMCX) .

All three companies sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Public Education’s earnings are expected to increase 6.2% in 2018.

Fiscal 2018 earnings for Grand Canyon are expected to increase 14.4%.

AMC Networks is expected to witness 8.8% growth in 2018 earnings.

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