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Investing.com - Goldman Sachs downgraded New Oriental Education (NYSE:EDU) from Buy to Neutral on Wednesday, while lowering its price target to $50.00 from $58.00. According to InvestingPro data, the company maintains strong financial health with a GOOD overall score, and analysis suggests the stock is currently undervalued relative to its Fair Value.
The investment bank cited expectations of significantly slower revenue growth, projecting a 9% compound annual growth rate (CAGR) for fiscal years 2025-2028, compared to the company’s previous 28% CAGR from FY23-25. The company currently maintains impressive gross margins of 55.45% and generated revenue of $4.9 billion in the last twelve months.
Goldman Sachs identified several factors behind the downgrade, including K12 (NYSE:LRN) revenue growth moderation at 14% CAGR, persistent revenue pressure on overseas-related segments with a projected -7% CAGR, and a lack of track record in scaling up new initiatives such as East Buy and tourism.
While the firm forecasts a 13% earnings per share CAGR for FY25-28, it expressed concerns about uncertainties in outer-year forecasts, particularly regarding the potential deflationary effect from GenAI-based offerings either by EDU or its competitors.
Goldman Sachs also noted that New Oriental’s new three-year shareholder return program, which includes dividends and/or share repurchases of at least 50% of GAAP net profit from the prior fiscal year, "does not appear to be particularly appealing in terms of a share price catalyst" based on investor conversations.
In other recent news, New Oriental Education & Technology Group Inc. reported its fourth-quarter earnings, showing strong revenue growth despite facing operational challenges. The results were mixed, as the company managed to surpass earnings expectations but still encountered difficulties in its operations. This development comes amid a period of scrutiny for many Chinese education firms. The company’s shares experienced a decline in pre-market trading following the earnings announcement. Investors are closely monitoring how New Oriental navigates these challenges while maintaining revenue growth. Analysts have not provided any recent upgrades or downgrades for the company. The latest earnings report highlights the ongoing complexities within the education sector in China.
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