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On Friday, New Oriental Education & Technology Group Inc. (NYSE:EDU) faced a revision in its stock rating as Citi analysts downgraded the company from Buy to Neutral. Accompanying the downgrade was a significant cut in the price target, now set at $50, decreased from the previous target of $83.
The downgrade by Citi reflects concerns over the company's growth prospects. According to the analysts, the revised price target is based on a multiple of 10 times the fiscal year 2025 estimated enterprise value to non-GAAP net operating profit after taxes (NOPAT). This includes a 50% discount that acknowledges the broad-based growth challenges New Oriental Education may face. Despite these concerns, InvestingPro analysis shows the company maintains strong fundamentals with impressive gross profit margins of 53% and a healthy current ratio of 1.71.
The analysts have also adjusted their revenue forecasts for the fiscal years 2025 to 2027, reducing them by 7-11%. Similarly, the non-GAAP profit estimates have been lowered by 10-17%. These revisions come in light of the normalization of K9 growth to 40%, down from 43%, and the overseas business growth moderating to 15%, a decrease from the previous 20% target.
Additionally, the cultural tourism segment of New Oriental Education, which had been aiming for breakeven, is now expected to see widened losses. This is despite the company's considerable fixed cost investments in this area. The analysts' comments suggest that the company's diversified education services are encountering a tougher environment that could impact its profitability and growth trajectory.
New Oriental Education's stock performance will continue to be closely monitored by investors as the company navigates these challenges and adjusts its strategies in response to the changing market conditions. For deeper insights into EDU's valuation and growth prospects, InvestingPro subscribers have access to over 15 additional exclusive tips and comprehensive financial analysis, including detailed Fair Value calculations and expert research reports.
In other recent news, New Oriental Education has experienced notable developments. The company has faced a series of downgrades from major analyst firms. JPMorgan downgraded the stock from Overweight to Neutral, following four consecutive quarters of missing guidance and subsequent estimate cuts. Similarly, Morgan Stanley (NYSE:MS) cut the rating to Equalweight due to concerns over the company's guidance misses and estimate reductions. Macquarie also downgraded the stock from Outperform to Underperform, responding to a revised financial outlook.
New Oriental Education's recent earnings reports have shown a mixed picture. The company reported adjusted earnings per American depositary share of $0.22 for the fiscal second quarter, falling short of the consensus estimate of $0.32. However, its revenue rose 19.4% year-over-year to $1.04 billion, slightly surpassing the expected $1.03 billion.
Investors should note these recent developments and stay updated on future announcements from the company and its analysts. Analyst firms BofA Securities and Jefferies have adjusted their financial outlook for New Oriental Education, reducing the stock's price target while maintaining a Buy rating. Despite these adjustments, the company maintains strong financial health.
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