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UTI Shares Down 30% on Multiple Lawsuits

Shares of Universal Technical Institute, Inc.UTI plunged a significant 30% on Dec 2, after several lawsuits were filed against the education company. Presently, several law firms are investigating if the company has violated federal securities laws. In addition, the company ended fiscal 2015 on a disappointing note, missing earnings estimates and reporting a wider-than-expected decline in revenues in the quarter.

We would like to remind investors that shares tanked 22% on Jul 24 after the company received a subpoena from the U.S. Attorney's Office for the Western District of North Carolina. Law firms, such as Khang & Khang LLP, Levi & Korsinsky, Bragar Eagel & Squire, P.C., Goldberg Law PC, and Law Offices of Howard G. Smith, are now filing suits on behalf of the stockholders for the loss that they may have incurred. They intend to investigate into the education company to determine if it had indeed provided wrong information to its stockholders.

On Jul 24, 2015, the education company announced that it has received a subpoena from the U.S. Attorney's Office for the Western District of North Carolina. Filed under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the subpoena demanded information regarding operations of the company's Mooresville, NC campus over the past several years. The court has also asked the company to provide documents related to its compliance with the ""90/10 rule," as well as those related to its other programs and practices.

90/10 rule under the Higher Education Act prohibits any proprietary institution from deriving more than 90% of its revenues from any Title IV funds, on a cash accounting basis, for any two consecutive fiscal years. While the company has agreed to cooperate with the U.S. Attorney's Office, it has refused to predict any possible outcome.

Universal Technical Institute seems to be going through a rough patch at the moment. The company's fourth quarter of 2015 earnings results were released earlier this week. The company lagged behind its target of recording positive student starts growth in the quarter as starts declined year over year.

Total enrollment during the fourth quarter 2015 was weak due to a lower student population at the beginning of the quarter and poor student starts. The company reported operating loss during the quarter owing to lower revenues, higher advertising expenses and cost related to the opening of the Long Beach, CA campus. In fact, the company expects this weakness to continue into fiscal 2016. Nonetheless, the company expects fiscal 2016 student starts to increase in low single digits, as it increases investment to support students starts growth.

Universal Technical carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the education industry include Lincoln Educational Services Corp. LINC , New Oriental Education & Technology Group Inc. EDU and TAL Education Group XRS , each sporting a Zacks Rank #1 (Strong Buy).

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UNIVL TECH INST (UTI): Free Stock Analysis Report

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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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