Citi has upgraded New Oriental Education (EDU, Financial) from Neutral to Buy, setting a price target of $50. The firm identifies significant potential in the company's strategic transition within its domestic market. According to Citi's analysis, New Oriental's business shift, particularly in the K-9 and senior high segments, is expected to increase its revenue share from 45% to 55% by the fiscal year 2026. This transformation is anticipated to provide a prolonged boost to earnings.
Despite the anticipated growth, New Oriental is trading at just 17 times its projected earnings over the next twelve months, even after a recent stock price increase. This valuation reflects the company's promising outlook amidst its evolving business model.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 18 analysts, the average target price for New Oriental Education & Technology Group Inc (EDU, Financial) is $64.78 with a high estimate of $99.41 and a low estimate of $33.00. The average target implies an upside of 18.90% from the current price of $54.48. More detailed estimate data can be found on the New Oriental Education & Technology Group Inc (EDU) Forecast page.
Based on the consensus recommendation from 20 brokerage firms, New Oriental Education & Technology Group Inc's (EDU, Financial) average brokerage recommendation is currently 2.1, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for New Oriental Education & Technology Group Inc (EDU, Financial) in one year is $88.73, suggesting a upside of 62.87% from the current price of $54.48. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the New Oriental Education & Technology Group Inc (EDU) Summary page.
EDU Key Business Developments
Release Date: January 21, 2025
- Revenue Growth: 19.4% year-over-year increase.
- Net Revenue (Excluding East Buy): 31.3% year-over-year increase.
- Operating Margin: 2.8%.
- Non-GAAP Operating Margin: 3.2%.
- Overseas Test Prep Revenue: 21% year-over-year increase.
- Overseas Study Consulting Revenue: 31% year-over-year increase.
- Adults and University Students Revenue: 35% year-over-year increase.
- New Education Business Initiatives Revenue: 43% year-over-year increase.
- Integrated Tourism-related Business Revenue: 233% year-over-year increase.
- Operating Income: $19.3 million, 9.8% decrease year-over-year.
- Non-GAAP Operating Income: $27.6 million, 45.8% decrease year-over-year.
- Net Income: $31.9 million, 6.2% increase year-over-year.
- Non-GAAP Net Income: $35.5 million, 29.1% increase year-over-year.
- Net Cash Flow from Operations: $313.3 million.
- Capital Expenditures: $60.6 million.
- Cash and Cash Equivalents: $1,418.2 million.
- Term Deposits: $1,443.2 million.
- Short-term Investments: $1,951.4 million.
- Deferred Revenue: $1,960.6 million, 19.2% increase year-over-year.
- Expenses: $1,019.4 million, 20.2% increase year-over-year.
- Cost of Revenue: $498.3 million, 17.9% increase year-over-year.
- Selling and Marketing Expenses: $196.1 million, 26.6% increase year-over-year.
- G&A Expenses: $324.9 million, 20% increase year-over-year.
- Non-GAAP G&A Expenses: $319.4 million, 24.7% increase year-over-year.
- Share-based Compensation Expenses: $8.3 million, 71.8% decrease year-over-year.
- Special Dividend: $0.06 per common share or $0.6 per ADS.
- Share Repurchase Program: $542.8 million spent on repurchasing 11.2 million ADSs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New Oriental Education & Technology Group Inc (EDU, Financial) achieved a 19.4% year-over-year revenue growth, surpassing expectations.
- The company's new ventures contributed significantly to revenue, with a 31.3% increase excluding East Buy's private label products and live streaming business.
- The Overseas Test Prep business saw a 21% year-over-year revenue increase, while the Adults and University Students business recorded a 35% increase.
- New education business initiatives, including Non-Academic Tutoring and intelligent learning systems, reported a 43% year-over-year revenue increase.
- The newly integrated tourism-related business line experienced a 233% year-over-year revenue increase, showcasing strong growth potential.
Negative Points
- Operating income decreased by 9.8% year over year, indicating potential challenges in maintaining profitability.
- Non-GAAP income from operations decreased by 45.8% year over year, highlighting significant pressure on operational efficiency.
- Expenses for the quarter increased by 20.2% year over year, driven by accelerated capacity expansion and new business investments.
- The company faces macroeconomic uncertainties impacting high-end education business demand, such as Overseas Test Prep.
- Revenue growth guidance for Q3 indicates a deceleration, with expected growth in the range of 18% to 21% in dollar terms.
