Universal Technical Institute Inc. ( UTI ) recently announced a new $25 million share buyback program, replacing the existing share repurchase authorization that had $23.7 million remaining at its disposal.
Management hinted that the company will make controlled purchases of shares through the open market. It also made clear that factors like price, corporate and regulatory issues as well as current market conditions would be taken into consideration to determine the timing and definite number of shares to be repurchased. The company can even customize or conclude the new program anytime with no prior notice.
Universal Technical's leading position in providing technical education to aspiring automotive professionals and its business model of working closely with leading original equipment manufacturers provide a competitive advantage. However, management hinted that the regulation proposed by the Department of Education is weighing upon student enrollments.
Management cautioned that the average number of students for fiscal 2012 will drop at a low-teens rate, and consequently result in a mid to high single-digit revenue decline. We observed that after dropping 3.8% in the third quarter of 2011, average undergraduate full-time student enrollment fell 11.3% in the fourth quarter.
However, Universal Technical also stated that the rate of drops in new student starts decelerated in the fourth quarter of 2011. Student starts for the quarter fell 14.5%, following a decline of 32.5% witnessed in the third quarter. Management predicts that applications and new student starts will drop but at a slower rate in the beginning of fiscal 2012, and will show improvements in the second half of the year.
Falling enrollments are weighing upon the company's results. Universal Technical posted lower-than-expected fourth-quarter 2011 results. The quarterly earnings of 24 cents per share missed the Zacks Consensus Estimate of 28 cents, and dropped 17.2% from 29 cents earned in the prior-year quarter due to a decline in student enrollment.
To counter the sluggishness witnessed in student enrollment amid turbulent environment and regulatory issues, the company is pushing hard to manage costs effectively, trying every means to improve marketing efficiencies and is launching a new program focused on automotive and diesel.
The company further intends to bring its current and potential students under the proprietary loan program by increasing its accessibility, and enhance the count of need-based scholarships in fiscal 2012.
The above analysis supports our Neutral stance on the stock. However, Universal Technical, which competes with Corinthian Colleges Inc. ( COCO ), holds a Zacks #5 Rank that translates into a short-term 'Sell' recommendation, reflecting the waning economy, tough regulatory environment and falling enrollment that are adversely impacting its top and bottom-line results.