We have recently downgraded our recommendation on Universal Technical Institute Inc. (UTI) to Neutral from Outperform with a target price of $24.00.
The company provides postsecondary technical education, offering undergraduate degree, diploma, and certificate programs to students seeking careers as automotive, diesel, collision repair, motorcycle, and marine technicians.
As evident, the company’s programs are highly dependent on the health of the automobile sector, which was hit hard by the recent economic downturn. This is especially a matter of concern for Universal Technical as its prospective students may shift preferences to other sectors.
However, Universal Technical’s strong focus on high school graduates and working adults seeking advanced training has enabled it to cement its position in the for-profit postsecondary education industry. Moreover, the company’s sustained effort to expand educational programs helps it to boost enrollments.
The educational institute said that enrollment averaged 18,782 (up 15.1% year-over-year) in first-quarter 2010. Average capacity utilization jumped 9% year-over-year to 75.2% in the reported quarter.
In addition, the company’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.
Furthermore, the company’s debt-free balance sheet and healthy cash reserves augur well for future operating performance.

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