Univ Tech Institute Uncertainties
Despite modest revenue growth, Universal Technical Institute, Inc.'s (UTI) operating margin continues to deteriorate, in part due to an aggressive expansion program. In addition, a declining capacity utilization rate and lower student enrollment continue to pressure both the operating margin and earnings. With the stock discounting most of the adverse developments and trading at a historically low valuation level, Universal Technical Institute is rated a Hold.
Universal Technical Institute's management focuses on specific technical education programs that have enabled the company to develop strong industry relationships. The company's well-established industry relationships have helped it to become the exclusive provider of advanced technical training programs for leading original equipment manufacturers.
The company's ability to recruit and retain students is being negatively impacted by a number of internal and external issues. Many of its programs are dependent on the automobile sector, which is currently experiencing a recession, thereby making employment outlook for students in the sector uncertain. Its transition to a new call center and advertising agency caused disruptions and exacerbated the company's difficulty in recruiting and retaining students. The FlexTech e-learning program is also experiencing softness. Therefore, marketing expenses will continue to rise as the company attempts to attract new students.
Due to the expectations for negative earnings growth over the near-term and the management's discontinuing the issuance of guidance, the stock is better valued on a Price-to-Sales (P/S) basis. Universal Technical Institute's stock has traded in a wide P/S multiple range of 1.5 to 5.2 since the company's initial public offering in 2003, but has mostly averaged in the range of 2.0 to 3.6. The target price of $14 is 1.0 times 12 month trailing sales, which was used since there is not any current catalyst to generate earnings growth.
Mixed Blessings for Moneygram
Moneygram International, Inc.'s (MGI) 1Q08 loss of $4.40 per share was substantially worse than the estimates. Financial results from continuing operations included net securities loss of $307.3 million resulting from the realignment of the company's investment portfolio. MGI's strong top-line growth during 1Q08 was totally overshadowed by the investment portfolio losses.
MGI recently received capital and debt infusion from an investment group. Due to our concerns for additional losses in the coming quarters, as well as the possibility of further downgrades, we have further lowered our FY08 estimate. However, we think that the bad news has been priced in the current share price to a great extent and thus, we rate MGI a Hold at present.
The management has ramped up marketing in an effort to improve branding and increasing its market share. The company has also teamed up with Yahoo and is now utilizing the Internet for money transfer. There are also growth opportunities in the official check business.
Despite the unfavorable economic condition of the U.S. housing market and growing concern for immigration, the company showed a robust growth in the Money Transfer Business. On the other hand, the money order business is on a secular decline. On the financial side, a significant portion of MGI's revenue still comes from spread income. This can lead to volatility through exposure to interest rate fluctuations, reducing earnings visibility. Longer-term, the impact of Check 21 is likely negative for MGI.
We currently set a six-month price target of $1.08 per share, which equates to 10.8 times our 2009 earnings estimate of $0.10 per share. Zacks Rank for MGI is currently 3 (up from 4), indicating no clear directional pressure on the shares over the near term. Short interest is currently about 5.04 days.
Fair Value for St. Jude Medical
St.
