Intrinsic value of Universal Technical Institute - UTI

Previous Close

$3.44

  Intrinsic Value

$1.31

stock screener

  Rating & Target

str. sell

-62%

  Value-price divergence*

-53%

Previous close

$3.44

 
Intrinsic value

$1.31

 
Up/down potential

-62%

 
Rating

str. sell

 
Value-price divergence*

-53%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of UTI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.41
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  347
  354
  362
  371
  382
  393
  406
  420
  435
  451
  468
  487
  507
  528
  550
  574
  599
  626
  654
  683
  715
  748
  783
  820
  859
  899
  942
  988
  1,035
  1,086
  1,138
Variable operating expenses, $m
 
  133
  136
  139
  143
  147
  152
  157
  163
  169
  175
  181
  189
  197
  205
  214
  223
  233
  243
  255
  266
  279
  292
  305
  320
  335
  351
  368
  386
  404
  424
Fixed operating expenses, $m
 
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  318
  325
  334
  342
  350
  359
  368
  377
  387
  397
  406
  417
  427
  438
  449
  460
  471
  483
  495
  508
Total operating expenses, $m
  366
  381
  390
  400
  410
  421
  433
  445
  458
  471
  485
  499
  514
  531
  547
  564
  582
  601
  620
  642
  663
  685
  709
  732
  758
  784
  811
  839
  869
  899
  932
Operating income, $m
  -19
  -27
  -28
  -28
  -28
  -28
  -27
  -25
  -23
  -20
  -17
  -12
  -8
  -2
  3
  10
  17
  24
  33
  42
  52
  63
  75
  87
  101
  116
  132
  149
  167
  186
  207
EBITDA, $m
  -4
  -14
  -15
  -15
  -14
  -13
  -12
  -10
  -7
  -4
  0
  5
  10
  16
  22
  29
  37
  46
  55
  65
  77
  89
  102
  116
  131
  147
  164
  182
  202
  223
  246
Interest expense (income), $m
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
Earnings before tax, $m
  -22
  -30
  -31
  -32
  -32
  -32
  -31
  -30
  -28
  -26
  -23
  -19
  -15
  -10
  -5
  1
  7
  14
  21
  30
  39
  49
  60
  71
  84
  97
  112
  127
  144
  162
  181
Tax expense, $m
  26
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  4
  6
  8
  11
  13
  16
  19
  23
  26
  30
  34
  39
  44
  49
Net income, $m
  -48
  -30
  -31
  -32
  -32
  -32
  -31
  -30
  -28
  -26
  -23
  -19
  -15
  -10
  -5
  0
  5
  10
  16
  22
  28
  36
  44
  52
  61
  71
  82
  93
  105
  118
  132

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  121
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  297
  179
  184
  188
  194
  199
  206
  213
  221
  229
  238
  247
  257
  268
  279
  291
  304
  317
  331
  347
  362
  379
  397
  416
  435
  456
  478
  501
  525
  550
  577
Adjusted assets (=assets-cash), $m
  176
  179
  184
  188
  194
  199
  206
  213
  221
  229
  238
  247
  257
  268
  279
  291
  304
  317
  331
  347
  362
  379
  397
  416
  435
  456
  478
  501
  525
  550
  577
Revenue / Adjusted assets
  1.972
  1.978
  1.967
  1.973
  1.969
  1.975
  1.971
  1.972
  1.968
  1.969
  1.966
  1.972
  1.973
  1.970
  1.971
  1.973
  1.970
  1.975
  1.976
  1.968
  1.975
  1.974
  1.972
  1.971
  1.975
  1.971
  1.971
  1.972
  1.971
  1.975
  1.972
Average production assets, $m
  119
  121
  124
  127
  131
  135
  139
  144
  149
  155
  161
  167
  174
  181
  189
  197
  205
  215
  224
  234
  245
  257
  269
  281
  294
  308
  323
  339
  355
  372
  390
Working capital, $m
  67
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
Total debt, $m
  44
  46
  49
  53
  58
  64
  69
  76
  82
  90
  98
  106
  115
  125
  135
  146
  157
  169
  182
  196
  210
  225
  241
  258
  276
  294
  314
  335
  357
  379
  403
Total liabilities, $m
  161
  162
  165
  169
  174
  180
  185
  192
  198
  206
  214
  222
  231
  241
  251
  262
  273
  285
  298
  312
  326
  341
  357
  374
  392
  410
  430
  451
  473
  495
  519
Total equity, $m
  137
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Total liabilities and equity, $m
  298
  180
  183
  188
  193
  200
  206
  213
  220
  229
  238
  247
  257
  268
  279
  291
  303
  317
  331
  347
  362
  379
  397
  416
  436
  456
  478
  501
  526
  550
  577
Debt-to-equity ratio
  0.321
  2.540
  2.680
  2.840
  3.010
  3.190
  3.370
  3.550
  3.740
  3.930
  4.120
  4.300
  4.480
  4.660
  4.840
  5.010
  5.180
  5.340
  5.500
  5.650
  5.800
  5.940
  6.080
  6.210
  6.340
  6.460
  6.570
  6.680
  6.790
  6.890
  6.990
Adjusted equity ratio
  0.091
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -48
  -30
  -31
  -32
  -32
  -32
  -31
  -30
  -28
  -26
  -23
  -19
  -15
  -10
  -5
  0
  5
  10
  16
  22
  28
  36
  44
  52
  61
  71
  82
  93
  105
  118
  132
Depreciation, amort., depletion, $m
  15
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  17
  18
  19
  20
  21
  21
  22
  23
  25
  26
  27
  28
  29
  31
  32
  34
  36
  37
  39
Funds from operations, $m
  10
  -17
  -18
  -18
  -18
  -17
  -16
  -14
  -12
  -9
  -6
  -2
  3
  8
  14
  20
  26
  32
  38
  45
  53
  61
  70
  80
  91
  102
  114
  127
  141
  156
  171
Change in working capital, $m
  3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from operations, $m
  7
  -16
  -17
  -17
  -17
  -16
  -15
  -13
  -11
  -8
  -4
  0
  5
  10
  16
  22
  28
  34
  41
  48
  56
  65
  74
  84
  94
  106
  118
  131
  146
  161
  177
Maintenance CAPEX, $m
  0
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
New CAPEX, $m
  -8
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
Cash from investing activities, $m
  17
  -14
  -15
  -15
  -17
  -17
  -17
  -19
  -19
  -21
  -21
  -22
  -24
  -24
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -36
  -38
  -40
  -41
  -43
  -46
  -48
  -50
  -53
  -55
Free cash flow, $m
  24
  -30
  -32
  -33
  -33
  -33
  -33
  -32
  -30
  -28
  -25
  -22
  -19
  -15
  -10
  -5
  0
  5
  10
  16
  22
  29
  36
  44
  53
  63
  73
  84
  95
  108
  121
Issuance/(repayment) of debt, $m
  -1
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Issuance/(repurchase) of shares, $m
  69
  31
  31
  32
  33
  32
  32
  30
  29
  26
  24
  19
  16
  11
  6
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  68
  34
  35
  36
  38
  37
  38
  36
  36
  33
  32
  27
  25
  21
  16
  12
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Total cash flow (excl. dividends), $m
  93
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  11
  17
  23
  29
  36
  44
  52
  61
  71
  81
  92
  104
  117
  131
  145
Retained Cash Flow (-), $m
  -24
  -31
  -31
  -32
  -33
  -32
  -32
  -30
  -29
  -26
  -24
  -19
  -16
  -11
  -6
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
Prev. year cash balance distribution, $m
 
  120
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  92
  -28
  -29
  -28
  -28
  -27
  -25
  -23
  -21
  -18
  -14
  -10
  -5
  0
  6
  10
  15
  21
  28
  35
  42
  50
  59
  69
  79
  90
  102
  115
  128
  143
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  88
  -26
  -25
  -23
  -22
  -20
  -17
  -15
  -12
  -9
  -7
  -4
  -2
  0
  2
  3
  3
  4
  4
  4
  4
  4
  4
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  28.0
  8.0
  2.3
  0.7
  0.2
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Universal Technical Institute, Inc. provides postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle, and marine technicians in the United States. The company offers undergraduate degree and diploma programs, and specialized technical education programs through its 12 campuses under various brands, such as Universal Technical Institute, Motorcycle Mechanics Institute and Marine Mechanics Institute, and NASCAR Technical Institute. It also provides manufacturer specific advanced training programs, including student paid electives at its campuses; and manufacturer or dealer sponsored training at various campuses and dedicated training centers. Universal Technical Institute, Inc. was founded in 1965 and is headquartered in Scottsdale, Arizona.

FINANCIAL RATIOS  of  Universal Technical Institute (UTI)

Valuation Ratios
P/E Ratio -1.8
Price to Sales 0.2
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -84.7
Growth Rates
Sales Growth Rate -4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -72.4%
Cap. Spend. - 3 Yr. Gr. Rate -2.3%
Financial Strength
Quick Ratio 121
Current Ratio 0.1
LT Debt to Equity 31.4%
Total Debt to Equity 32.1%
Interest Coverage -6
Management Effectiveness
Return On Assets -14.5%
Ret/ On Assets - 3 Yr. Avg. -5.4%
Return On Total Capital -28.3%
Ret/ On T. Cap. - 3 Yr. Avg. -10.8%
Return On Equity -38.4%
Return On Equity - 3 Yr. Avg. -14.7%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 42.7%
Gross Margin - 3 Yr. Avg. 45.3%
EBITDA Margin -1.2%
EBITDA Margin - 3 Yr. Avg. 2.7%
Operating Margin -5.5%
Oper. Margin - 3 Yr. Avg. -2.1%
Pre-Tax Margin -6.3%
Pre-Tax Margin - 3 Yr. Avg. -2.6%
Net Profit Margin -13.8%
Net Profit Margin - 3 Yr. Avg. -5.3%
Effective Tax Rate -118.2%
Eff/ Tax Rate - 3 Yr. Avg. -11.1%
Payout Ratio -6.3%

UTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UTI stock intrinsic value calculation we used $347 million for the last fiscal year's total revenue generated by Universal Technical Institute. The default revenue input number comes from 2016 income statement of Universal Technical Institute. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our UTI stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for UTI is calculated based on our internal credit rating of Universal Technical Institute, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Universal Technical Institute.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of UTI stock the variable cost ratio is equal to 37.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $242 million in the base year in the intrinsic value calculation for UTI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.7% for Universal Technical Institute.

Corporate tax rate of 27% is the nominal tax rate for Universal Technical Institute. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the UTI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for UTI are equal to 34.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Universal Technical Institute operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for UTI is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $137 million for Universal Technical Institute - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 24.414 million for Universal Technical Institute is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Universal Technical Institute at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Universal Technical reports 2Q loss   [May-04-17 06:27PM  Associated Press]
▶ [$$] For-Profit School Shares Lifted as Trump Delays New Rules   [Mar-12-17 11:00AM  at The Wall Street Journal]
▶ Davis New York Venture Fund Annual Review 2017   [Feb-10-17 12:32PM  GuruFocus.com]
▶ Universal Technical reports 1Q loss   [Feb-01-17 07:32PM  Associated Press]
▶ Universal Technical Institute saves $9.2M but still bleeding red ink   [06:30PM  American City Business Journals]
▶ Universal Technical Institute Provides Trading Update   [Dec-08-16 12:23PM  PR Newswire]
Stock chart of UTI Financial statements of UTI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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