An Educated Play in Technical Training

02/19/2020 5:00 am EST

Focus: CONSUMER

David Coleman

Quantitative Portfolio Strategist, Argus Research

Universal Technical Institute (UTI) is a provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians, notes David Coleman, a leading analyst with Argus Research.

UTI offers certificate, diploma and undergraduate degree programs at 12 campuses across the United States under the banner of several well-known brands, including Motorcycle Mechanics Institute, Marine Mechanics Institute, and NASCAR Technical Institute. UTI has provided technical education for 54 years.

The company has invested in transforming its schools by improving its website, transitioning from large destination campuses to smaller commuter campuses, and offering new programs, including high-demand programs like welding at several campuses.

UTI has shown significant improvement over the last two quarters. It posted better-than-expected EPS of $0.09 in 4Q19 after multiple quarters of losses, followed by EPS of $0.07 in 1Q20.

Moreover, the swing to profitability came during a period of low unemployment and generally solid economic growth — conditions that have historically been challenging for UTI and other trade schools.

The company is also making progress in attracting new students, lowering costs (in part by focusing on smaller regional schools), and maintaining a high graduate employment rate. That said, UTI continues to face stiff competition from generally

In FY20, management expects new student starts to grow 2.5%-4.5%, and the average student population to increase 1%-2%. It expects full-year revenue of $338-$345 million, up from $317 million in FY19.

We are raising our FY20 EPS estimate to $0.22 from $0.09 and our FY21 estimate to $0.27 from $0.09. We are upgrading our rating on the stock to "buy" with a target of $12 a share.

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