Given weak revenue trends and losses at uti we

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been very unstable. Given weak revenue trends and losses at UTI, we continue to view the stock unfavorably. The operating environment remains challenging, as the employment picture has improved. In May 2018, the official unemployment rate was 3.8%, the lowest level in 18 years. The “U6” unemployment rate (including discouraged and marginally attached workers, and those forced to take part-time jobs) fell to 7.6%, its lowest level since 2001.These declining unemployment rates do not bode well for for-profit educational stocks such as UTI. RECENT DEVELOPMENTS Over the past three months, UTI shares have outperformed, gaining 14.8% compared to an increase of 1.2% for the broad market. The shares have underperformed over the past year, however, falling 18.4% while the S&P 500 has gained 13.9%. On May 3, the company reported a fiscal 2Q18 net loss of $10.1 million or $0.40 per share, compared to a loss of $3.0 million or $0.12 per share in the prior-year period. The consensus estimate called for a loss of $0.19. Second-quarter revenue fell to $80.7 million from $82.5 million; the decline was attributed to a 4.4% decline in the student population. UTI plans to open smaller commuter-friendly campuses in high-demand locations. Management recently announced that the company would build an 800-student campus in Bloomfield, New Jersey, at a cost of $11 million. This campus will be similar to its campuses in Dallas and Long Beach. Management expects it to be accretive to earnings in the first 18 months after completion and cash flow breakeven by year four. The new campus will be UTI’s first in the New York metro area. In September 2016, UTI began to implement a financial improvement plan intended to create a leaner organization. The plan calls for workforce reduction at the company’s corporate offices and campus locations, changes in its marketing strategy and admissions structure, and other process improvements. The plan is beginning to have an impact, and management now expects growth in student starts in the second half of 2018.
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M ARKET U PDATE - 17 - EARNINGS & GROWTH ANALYSIS Growth has been difficult for UTI as enrollment and revenue have declined. Undergraduate full-time student enrollment fell 2.5% to 10,005 students in 2Q18, and new student starts were down 2.7% year-over-year. Second-quarter operating expenses were $89.5 million, up from $81.8 million in the prior-year period. The $7.7 million increase reflected higher compensation, contract services, and advertising costs. The operating loss was $8.8 million, compared to operating income of $0.7 million in the prior-year period. For FY18, management expects new student starts to grow in the low single digits, with growth weighted toward the back half of the year. The student population at the start of FY18 was down 6% year-over-year, pressuring revenue in the first half. Based on the timing of new student starts, the average student population for the full year is expected to decline in the mid-single digits. Management expects full-year revenue of $310-$320 million, down from $324 million in FY17.
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