Universal Technical Institute, Inc. (UTI) has emerged as a strong growth story, with shares up over 140% in the past year. This surge is attributed to accelerating earnings and strong demand for its career programs in various technical fields.
This article examines recent developments and provides insights into the stock’s future potential.
Earnings Recap
UTI reported fiscal Q2 earnings per share (EPS) of $0.14, up from $0.04 in the same period last year, although it missed the consensus estimate by a penny. Revenue for the quarter was $184 million, marking a 12.5% year-over-year increase.
This quarter was the first with a full-year comparison since UTI’s acquisition of Concorde in December 2022, which expanded the company’s offerings beyond traditional transportation sector training into healthcare vocational programs.
Acquisition and Growth Momentum
The acquisition of Concorde has been a game-changer, significantly contributing to growth momentum. UTI has expanded its curriculum and added campuses in new cities, increasing its capacity for more students.
In Q2, the combined group welcomed 5,480 new student starts, representing an 18.5% increase from the prior year. Adjusted EBITDA for the quarter was $47.1 million, a 40% increase from Q2 2023.
Full-Year Guidance
Due to these positive trends, management has increased full-year guidance. UTI now expects 2024 revenue between $720 and $730 million, up around 19% from 2023, driven by a forecasted 15% increase in new student starts.
The company anticipates EPS between $0.68 and $0.73, a significant increase from $0.13 last year, and adjusted EBITDA between $103 million, representing a 60% increase from 2023.
Market Demand and Career Programs
UTI’s appeal lies in its focus on job growth areas such as transportation, skilled trades, and healthcare. Careers like dental hygienists, medical assistants, aircraft technicians, welders, and auto repair technicians are essential and less likely to be replaced by AI, ensuring sustained demand for UTI’s programs.
The U.S. Bureau of Labor Statistics projects hundreds of thousands of job openings annually in the areas UTI specializes in. This dynamic creates a steady pipeline of new students needing training, benefiting UTI.
Stock Performance and Valuation
With shares more than doubling over the past year, much of the positive financial and operational trends may already be priced in. UTI is trading at an EV-to-forward EBITDA ratio of 8.5x, up from an average of around 5x between 2022 and 2023.
This premium valuation is higher than its peer Lincoln Educational Services Corp. (LINC), which trades at around 7.6x. Despite UTI’s stronger earnings growth, LINC has a cleaner balance sheet with no outstanding debt, whereas UTI has a gross leverage ratio of about 2x.
Risks, Challenges and Outlook
Potential risks include economic downturns that could impact consumer spending and the labor market, reducing demand for educational programs. Weaker-than-expected results, particularly in new student starts, could lead to increased stock volatility.
Universal Technical Institute has demonstrated impressive growth, driven by strong demand for its training programs and strategic acquisitions. Despite the stock’s significant appreciation over the past year, the positive long-term outlook supports a cautiously bullish stance.
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I’m Nathan Goldstein, a writer and political analyst focused on simplifying complex social and political issues. My writing breaks down the intricacies of today’s society and politics to make them more understandable for you. I’m committed to providing clear and well-informed insights.
