Universal Technical Hits New 52-Week High: More Room to Run?

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Universal Technical Institute, Inc.UTI hit a new 52-week high of $3.91 on Jan 2. The stock pulled back to end the trading session at $3.79, gaining 3.8% in the trading session.

In fact, shares of Universal Technical have gained 66.3% over a year against the Zacks Schools industry's decline of 25.4%. Focus on smaller commuter-friendly campus, strong cost-saving initiatives, along with marketing efficiency should drive the stock's performance in the upcoming quarters as well. Importantly, the industry has portrayed a bull run in a year's time, as is evident from the stock's rally against the S&P 500 index's fall of 7.8%. Impressively, the industry ranks in the top 40% (102 out of 257) of the Zacks classified industries.

Also, earnings estimates for fiscal 2019 and 2020 have shown an upward revision over the past 60 days, with an expected year-over-year growth rate of 57.6% and 126.6%, respectively.

What's Driving the Stock?

In the fiscal fourth quarter, Universal Technical reported a loss of 49 cents per share, which was in line with the Zacks Consensus Estimate. Although the company's reported loss was wider than the year-ago period, the same narrowed sequentially. Importantly, its total starts rose 8.5% year over year for the first time in eight years.

The company has undertaken several initiatives to drive enrollments and return to profitability. Its keen focus on opening smaller commuter-friendly campuses in high-demand locations is one of those initiatives. In fact, during the fiscal third quarter, it opened a new campus in Bloomfield, NJ. Students living and working near these smaller campuses will be benefited from the same.

Universal Technical has been refining its marketing efficiency by creating higher-quality inquiries using a new media-mix model. The company has shifted its traditional advertising channels to digital as well as local channels that focus on potential students and their families. As a result, its media inquiries in fiscal 2018 grew to 40% from 30% a year ago. The company's long-term plan is to rationalize its footprint, effectively transform into smaller commuter-friendly campuses and offer newly-expanded programs to better utilize existing capacity.

Moreover, cost-saving initiatives bode well for its bottom-line performance. The company has been undertaking several initiatives to reduce expenses. It is working closely with more than 30 leading OEMs to gain a competitive advantage. Universal Technical is a primary provider of manufacturer specific advanced training ("MSAT") programs that offer a cost-effective alternative for sourcing, as well as developing technicians for both OEMs and their dealers.

In fiscal 2019, the company expects new student starts to grow in mid-high single digits across existing campuses. The average student population is likely to grow in low-single digits. Revenues for fiscal 2019 are expected in the range of $322-$332 million, up from fiscal 2018 level of $317 million.

Given that it is investing huge amount in marketing and admissions to support start growth, as well as for the expansion of its welding program, Universal Technical projects to incur operating loss between $10 million and $15 million in fiscal 2019. Although the company is expecting losses, the projected loss is narrower than the same incurred in fiscal 2018.

Zacks Rank & Other Stocks to Consider

Currently, Universal Technical carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the Zacks Consumer Discretionary sector include G-III Apparel Group, Ltd. GIII , The Madison Square Garden Company MSG and BJ's Wholesale Club Holdings, Inc. BJ , each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

G-III Apparel's earnings are expected to grow 71.9% in fiscal 2019.

Madison Square's fiscal 2020 earnings are expected to grow 438%.

BJ's Wholesale Club's earnings for 2020 are expected to increase 16.6%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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